According to the expense recognition principle, expenses must be matched up to revenues (matching principle). Therefore expenses should be associated with revenue producing transactions, events or activities. In essence expenses go hand in hand with revenues; expenses follow the revenue that is associated with.
Example 1:
ABC Cars sells 10 cars worth $100 each in January. In order to sell these cars it had to incur wage expenses of $1000. This should be expensed during the month of January when revenue is recognized.
Example 2:
ABC Cars doesn't pay wages until the 7th of every month. ABC Cars thus delays payment till February 7th but does record the expense incurred with a corresponding payable.
