Define the concept of matching revenues and expenses.
Define the concept of matching revenues and expenses.
Matching revenue (income) and expenses (costs) allows you to see all your money coming in and going out, and at the end of the day to see if you are actually making any money. The difference between your revenue and expenses will be your profit, or if your expenses are greater than your income it will be a loss.
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Matching Principle
The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval. Ideally, the matching is based on a cause and effect relationship: sales causes the cost of goods sold expense and the sales commissions expense. If no cause and effect relationship exists, accountants will show an expense in the accounting period when a cost is used up or has expired. Lastly, if a cost cannot be linked to revenues or to an accounting period, the expense will be recorded immediately. An example of this is Advertising Expense and Research and Development Expense
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Matching principle states that u hve to match all the revenues and expenses in the yr thy incurred.
As per matching concept,
All costs are to be recorded with their revenues in the same accounting period in which such costs and revenues are incurred.
In brief,
All costs must matched with the revenues generated.
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