![]() Laura Chapman holds a Bachelor of Science in accounting and has worked in accounting, bookkeeping and taxation positions since 2012. AccountingCoach: Accounting Principles (Explanation).AccountingTools: The Matching Principle.AccountingCoach: What is the Matching Principle?.Federal Accounting Standards Advisory Board: Accounting Standards and Other Pronouncements.What Financial Statements Are Affected.Īccounting Accrual Basis Vs. It paints a more realistic picture of the business's operating performance on the income statement. ![]() This is the essence of the matching principle. You would record the portion each year rather than the entire cost to better relate it to the sales you made. ![]() You would instead divide the cost into years, if not months, for greater accuracy. It would make it look like your business performed very poorly that year. You would not want to record a purchase that cost several thousand dollars as an expense in that first year while you are first beginning to generate income. You may have a cash register, for example, that should have a life of about seven years. When you have fixed assets or durable equipment that you will use for more than one year, you will break up the cost of that asset over its expected life. One important result of the matching principle is the concept of depreciation. The matching concept is the guideline accountants use to be sure expenses are related to revenues and show up in the same period. Some expenses do not make it to the income statement immediately.
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