Matching Principle
Recording expenses in the same period as the revenues they helped generate.
The matching principle requires expenses to be recognized in the same period as the revenues they help produce, ensuring the income statement accurately reflects the cost of earning each dollar. This drives the need for adjusting entries like accrued expenses and deferred costs, and prevents distorted profitability by connecting costs to the revenue they generated.
Example
A retailer pays $5,000 for holiday advertising in November to drive December sales—under the matching principle, the expense is recorded in December when sales occur.
Why It Matters for Your Business
Without matching, one month could look wildly profitable while the next appears unprofitable, even though the business is steady.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
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