The matching principle allows an asset to be distributed and matched over the course of its useful life in order to balance the cost over a given period. Assets (specifically long-term assets) experience depreciation and the use of the matching principle ensures that matching is spread out appropriately to balance out the incoming cash flow. If you recognise an expense later than is appropriate, this results in a higher net income.Ĭertain business financial elements benefit from the use of the matching principle.If you recognise an expense earlier than is appropriate, this results in a lower net income.If expenses are recognised at the wrong time, the financial statements may be greatly distorted: in turn jeopardising the quality of the statements and providing an inaccurate representation of the financial position of the business. the income statement, balance sheet, etc. The matching principle a basic accounting principle that is adhered to in order to ensure consistency in a company's financial statements: i.e. The matching principle is not used in cash accounting, wherein revenues and expenses are only recorded when cash changes hands. In practice, the matching principle combines accrual accounting (wherein revenues and expenses are recorded as they are incurred, no matter when cash is received) with the revenue recognition principle (which states that revenues should be recognised when they are earned or realised, no matter when cash is received). Track and manage your expenses and revenues all in one place with Debitoor invoicing and accounting software. The matching principle is an accounting principle which states that expenses should be recognised in the same reporting period as the related revenues. Matching principle - What is the matching principle?
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