Matching concept is one of the basic fundamental accounting concepts. Matching concept means, matching the revenues earned during an accounting period with the cost associated with the period to ascertain the profit earned of the business concern is called the matching concept. Matching Concept definition is simple. It is the basis for finding out actual profit for an accounting period and it is should be distributed to the shareholders of the business concerns. In web based accounting lessons our website accounting web publishes every day new tutorials than other websites. So view regularly our website for new lessons everyday on accounting. Matching concept in accounting is similar like historical cost concept and materiality concept, but slightly different.
Why Matching concept in Accounting Is Important?
Matching concepts refers to matching of revenues and costs relevant t a specific period is called the matching concept.
The matching concept implies that the revenue of the period and the expenses incurred to earn the revenues must be relating to the same accounting period.
Matching Assumption = to calculate the profit for a period, and all the expenses for the Period should be matched against the revenues for the period.
For example = Adjustments for prepayments and accrued expenses and incomes.
All the revenue expenses and incomes associated with the accounting period have to be identified. Outstanding and prepaid expenses and incomes have to be properly adjusted with necessary changes for the period. Depreciation, amortization of expenses and necessary provisions are to be made.
Matching concept facilitates the expenses should be matched with revenue for determining actual profit or loss for a particular period. This concept is more useful for the owners, shareholders and other users to know the exact amount of profit or loss of the business firm during the accounting period.
Matching concept- if an event affects revenues and expenses, the effect on each period should be recognized in the same accounting period. This leads to matching concepts.
Matching Concept Principles
As per this concept, all the expenses are matched with the revenue of that period should only be taken into consideration. Matching of the revenue with costs with has to be done in two stages
– Direct costs are matched with sales revenue to ascertain gross profit.
– Indirect costs are matches with gross profit and other incomes to ascertain net profit from operations and non operating loss and expenses like abnormal loss, expenses written off during the period should also be matched with operating profit to find the net profit for appropriation.
It is also not necessary that every expense identify every income, a few expenses are directly related to the revenue and other are directly related to sale but power, rent, salaries etc. are recorded on mercantile basis for a particular accounting period. Mercantile system of accounting also facilitates matching of costs with revenues in order to ascertain profit or loss of an accounting period. In accounting process the periodicity concept has also been followed while applying matching concept.
Matching concept is aims; the periodical matching of costs and revenues provides reliable measures of the progress of an enterprise, made during the accounting period.
Useful External Link: Matching Principles
Originally posted 2013-10-14 16:26:46.