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4 Va. Tax Rev. 1 (1984-1985)


A central principle in accounting is that accounting methods must “clearly reflect income”. They must match a taxpayer’s revenues with the expenses of producing these revenues to determine their income. The article argues against this principle with an examination of accrual accounting methods. It looks at the role of matching in connection with two fundamental concerns of accrual accounting, the “all events” test and the principle of “clear reflection” of income. Through this examination the article notes that matching is generally irrelevant in principle, since the goal of tax accounting is to produce administratively feasible and economically sensible rules for timing income and deductions. Administrative and economic concerns, in cases of prepaid income and deferred-payment deductions, the article asserts, also favor matching income and deductions with cash flow rather than with each other. The article, in addition, suggests that problems in determining ''clear reflection'' of income should be resolved by considering the merits of available alternatives.

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