Final answer:
The Matching Principle dictates that expenses should be recorded in the same period as the revenues they help to generate. Explicit costs are tangible payments while implicit costs represent opportunity costs. Accounting profit is computed by subtracting explicit costs from total revenues.
Step-by-step explanation:
The question addressed the Matching Principle, which is a fundamental concept in accounting that states expenses must be matched with the revenue they help to generate during the same accounting period, thereby ensuring that the revenue and the related costs are recorded in the same fiscal periods. This principle is important for accurately measuring a business's profitability. The correct option in the question is d. Expenses are matched with revenue earned in the same accounting period.
Explicit costs are direct payments made to others in the course of running a business, such as wages, rent, and materials. In contrast, implicit costs are indirect, non-cash expenses that represent the opportunity cost of using resources owned by the business. To understand the relationship between cost and revenue, one must recognize that total revenue is obtained from selling goods and services, and total costs include both explicit and implicit costs. Subtracting total expenses from total revenues results in accounting profit, as illustrated in Chapter 7 where accounting profit is calculated.
According to the formula given in Chapter 7, accounting profit can be computed as: total revenues ($1,000,000) minus explicit costs ($950,000), which equals an accounting profit of $50,000.