![]() ![]() The matching principle aims to minimize any mismatch in timing between when an organization incurs costs and when it realizes any associated revenue.This Accounting Terminology Checklist outlines the terminology, concepts and conventions that are accepted within the accounting profession.Īccounting Concepts and Conventions | Basic Accounting Concepts and Financial Statements | Cash Accounting | Accrual Accounting | Basic Accounting Terms | Revenue Recognition Principle | Matching Principle | Example Income Statement. If you are required to produce such figures for internal use then you need to adhere to its internal definitions. The accounting standards and regulations of your operating country will dictate how such items are represented in your organization's published accounts. The way in which an organization can interpret an item of high-value capital equipment designed for longevity is open to interpretation, and a new model or changes in technology can drastically alter its life span. ![]() It is difficult to be exact in such cases because they are influenced by numerous factors, and many, such as changes within the economic climate, are outside of an organization's control. The matching principle is a financial accounting concept that requires revenues and expenses to be matched in the same period. This is where we often refer to accrual expense recognition as the matching principle, the goal being to match expenses to the same time period they are used to. This is especially true in the case of provisions for bad debt and depreciation. Accrual accounting is an accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The more complicated they are, the more difficulty your organization will have in 'matching' the date costs occur with the date revenue or income is received. The degree to which this can be achieved will be influenced by how complex your operations are. This still has to be attained whilst adhering to the accounting standards of recording costs as they occur and revenue when it is earned. This principle achieves this by minimizing, wherever possible, the mismatch in timing between when your organization incurs costs and when it realizes its revenue. This is because it enables your financial accounts to show a better evaluation of actual profitability and performance. In simple terms matching concept means, in relation to a given time period, the expenses that are recorded in the financial statements of a company must be related to the revenues generated in the exact same period. Your organization may prefer to use the matching principle when deciding how to record its financial performance. The matching principle is part of the Generally Accepted Accounting Principles (GAAP), based on the cause-and-effect relationship between spending and earning. Matching principle is one of the most fundamental concepts in accrual accounting. ![]()
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