The matching principle states that expenses should be recognized and recorded when those expenses can be matched with the revenues those expenses helped to generate. To better understand how this concept works in the real world, imagine the following matching principle example. Put it simply, a company must recognize expenses on the financial statements when it produces the revenue as a result of those expenses. This example is designed to illustrate the importance of the matching principle as, even though the materials were purchased in year 1, they weren’t sold until year 2. In simple terms matching concept means, in relation to a given time period, the expenses that are recorded in the financial statements of a company must be related to the revenues generated in the exact same period. The Matching Principle It’s likely that at some point in your life, you’ve purchased a big item that cost a lot of money, whether it was a car, a refrigerator or a similar item. When a product is sold, the most direct cost incurred is the cost of the product. Certain financial elements of business also benefit from the use of the matching principle. In many cases, expenses such as cost of goods sold and sales commissions can be related to revenue. The matching principle is a fundamental practice of accounting that states that expenses are reported for the same period as related revenue. 2. Matching Principle is a common accounting concept. If expenses were reported as soon as they occurred, then company statements would be very … Matching principle example. Matching principle is one of the most fundamental concepts in accrual accounting. Under this, a company should report an expense in the income statement in the same period when it earns the revenue. The Matching Principle. Various attempts are being made to ext The matching principle helps businesses avoid misstating profits for a period. In other words, expenses shouldn't be recorded when they are paid. A Deferred expense (prepaid expenses or prepayment) is an asset used to costs paid out and not recognized as expenses according to the matching principle. 22 sentence examples: 1. The matching principle is an accounting concept that matches revenues with the expenses that were incurred in order to generate those revenues in the first place. For example, an expense that is recognized earlier than it is appropriate results in a lower net income. The matching principle helps to keep the financial statements a useful and fair representation of results. Explain how depreciating an example of the matching principle. The clearest and most straightforward example of matching expenses with revenue is the cause and effect relationship illustrated in cost of goods sold and revenue. The Matching Principle and Cause and Effect. It's likely that at some point in your life, you've purchased a big item that cost a lot of money, whether it was a car, a refrigerator or a similar item. 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