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What is The Matching Principle?

Definition: The Matching Principle states that all expenses must be matched in the same accounting period as the revenues they helped to earn.

In practice, matching is a combination of accrual accounting and the revenue recognition principle. Both determine the accounting period in which revenues and expenses are recognized.

Why Matching is Important to Accountants?

One of the basic accounting principles; it is followed to create a consistency in the income statements, balance sheets, etc.

Financial statements may be greatly distorted if expenses are recognized earlier rather than later and vice versa; jeapordizing the quality of the statements and providing an unfair representation of the financial position of the business.

For example:

  • Recognizing an expense earlier than is appropriate lowers net income
  • Recognizing an expense later than appropriate raises net income.


Take a look at some useful accounting terms for clarification.

 

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