Question

Explain matching principle of accounting.

Explain the matching principle.

Answer 1

The process of ascertaining the amount of profit or loss during a particular period involves matching the revenues and expenses of that period. The matching concept emphasises this aspect. It states that expenses incurred in an accounting period should be matched with revenues during that period rather than comparing cash received and cash payments. This concept requires proper allocation of costs into different accounting periods so that relevant incomes and expenses are matched.

Following points must be considered while matching the cost with the revenue.

1. All expenses relating to accounting period whether paid or not must be taken into account.
2. Expenses paid in advance should be taken into account.
3. All incomes earned during the accounting period, whether received or not, should be taken into account.
4. Any income received in advance or relating to earlier periods should not be taken into account.