Discussion
Which of the following are the methods of measuring business income
(i) Net worth method
(ii) Matching Principle
(iii) Reconciliation method
Answer: A
The keyed answer is only (i) and (ii). Business income is measured by comparing the net worth (capital) of the business at the start and end of a period, with adjustment for drawings and capital introduced, which is the net worth method, and by the matching principle, which sets the expenses of the period against the revenues they helped to earn. The reconciliation method is not a recognised way of measuring business income, so (iii) is left out. This follows the answer key and the usual accounting-theory treatment of the two methods.
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