If expenses cause income to be received over several reporting periods and the relationship between income and expenses cannot be clearly determined or determined indirectly, expenses are recognized by reasonably allocating them between periods.The cost of a product sold, for instance, is recognized as an expense in the income statement only after the proceeds from the sale of that product are recognized. An expense is recognized after the income that was received as a result of expenses is recognized and earned.Let us explain this principle in more detail: the distribution of the initial cost of fixed assets through depreciation) and the allocation of costs in whole to the period. Therefore, there are special techniques used with the matching principle: the distribution of costs over time in a special way (e.g.
It is often difficult to determine whether a certain expense has resulted in current revenue. The matching principle reinforces the accrual basis of accounting, which is required by the generally accepted accounting principles (GAAP).Using this principle will show just how well the business has done financially and how effectively the company’s management has allocated its resources.This principle allows for real-time analysis of the financial expenses and revenues.Thanks to the matching principle, a consistency in financial statements is reached.Why should a company adhere to the matching principle when recording transactions? It plays an important role in the accounting practice of any business and carries many benefits. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business. Keeping proper financial records is time-intensive and small mistakes can be costly.
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