The concept of matching revenues and expenses refers to what?

"REX" or revenue to expenses ratio.

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Originally Posted by papspl

The concept of matching revenues and expenses refers to what?

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The concept refers to the fact that you should match both the revenues and expenses in the period that they are earned/accrued.

For example…

In 2006, let’s say you had $50,000 in sales and total expenses of $20,000. Therefore you made $30,000 profit.

However, of those expenses, let’s say you don’t get one of the bills of $2,000 until Jan, 4, 2007. However, you already used the expense in 2006.

Should that $2,000 be used to reduce your 2006 or 2007 income?

It should be your 2006 income.

This is matching the cost incurred with the revenue earned ,which is important to find out the profit earned for that period.

It is known as the Matching Principle as per U.S. GAAP (Generally Accepted Accounting Principles).