Question

Explain 'Matching Concept' of GAAP.

Answer 1

1. According to this principle, the cost of a particular period should be charged from the revenue of the same period only. Only such matching of cost and revenue can reveal the true profit or loss for a period. Revenue must be ascertained first for a period, and then the cost of that period should be charged to it.
2. When cost is associated with a particular product or service, revenue earned from that product or service should be matched to its cost.
3. This principle provides the guidelines as to how the expenses are to be matched with revenue. It requires that in determining the net profit, all costs which are applicable to revenue of that period should be charged against that revenue.
4. For matching costs with revenue, revenues should first be recognised, and then costs incurred for generating that revenue should be recognised. The matching of costs with revenue is based on the accrual system of accounting.