Matching concept

Matching Concept is pivotal in Accounting profession. Every time financials are made, matching concept has to be dealt with. It says that the revenue earned from a specific period shall be matched with the expenses incurred in same period in order to ensure consistency in reporting.

1. MATCHING as a PRINCIPLE in ACCOUNTING Matching principle is fundamental when it comes to preparation of financial statements According to the matching principle concept “related Revenues and expenses must be matched for a same period” Matching concept tell the users of FS about the expenses incurred in a period against the revenue earned in same period, thus all expenses incurred in a specific period must be matched against the revenue for same period. This principle recognizes that businesses must incur expenses to earn revenues. It is part of accrual accounting where expenses are recorded in a period to which it pertains and not when actually paid

2. MATCHING as a PRINCIPLE in ACCOUNTING On the other hand, revenue recognition principle is an accounting principle that requires the revenue be recognized and recorded when it is realized and earned, regardless of when the payment is received. In other words, businesses don’t have to wait to receive cash from customers to record the revenue from sales . The primary reason is to ensure consistency in preparation of financial statements, such as the income statement, balance sheet etc. Recognizing the expenses at the wrong time may deteriorate the financial statements greatly and provide an inaccurate financial position of the business. The matching principle helps businesses avoid misstating profits for a period.

3. MATCHING PRINCIPLE Illustrations Many International Accounting Standards (IAS) and GAAPs have incorporated Matching concept. Examples are: A company pays 5% of the commission to its agents on sale volume. e .g. in June total commission earned by agents is RS. 100,000 then Rs. 5,000 commission expense will be recorded in June, regardless of when paid Salaries are normally paid in the following month for the month it actually relates. E.g. Salary fo r June is paid in 1 st week of July but the expense is recorded in June Depreciation expense is recorded against the use of assets for realization of benefits in same period. 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 period Contract revenue, If the contract has completed and delivery of goods and services have been made, then revenue is recorded as receivable from the party, regardless of the timing of payment is received