![]() ![]() ![]() ![]() There can be inherent misrepresentation and misreporting if the expenses are recognized for the wrong accounting periods. The matching principle states that the business expenses should be related to the revenues generated, thereby minimizing the scope of under-reporting, over-reporting, manipulation of financial statements, and any possible misrepresentation.Īmongst various accounting principles, matching concept and accrual accounting ensures that the timeliness of transactions is maintained and the impact of a transaction should not impact any other accounting period than when it is incurred.Ī company’s cash flow statement is based on the matching principle as the outflow and inflow are matched for a given accounting period, consistency and accuracy are maintained to represent a true and fair picture of financial health for decision-making. The matching principle is quintessential for accounting and reporting as it ensures the coherence and accuracy of financial reports where the revenues and expenses have a cause-effect relationship for a given accounting period. This principle ensures that timeliness and true financial reporting are done, forming the bedrock of sound decision-making. The matching principle applies to small businesses and all the accounts mentioned in a chart of company accounts. The matching principle and accrual accounting are contrary to the cash basis of accounting, where business transactions are recorded based on receipt or payment of cash. The matching principle is similar to the accrual basis of accounting, which states that revenue and expenses are to be recognized as and when they are incurred, irrespective of whether cash is transferred. Related revenues (highlighting cause-and-effect relation), and.The basic three factors of this principle are: The matching principle concept relies on the cause-and-effect relationship that binds expenses and their associated revenues. The matching principle is a core concept that guides the preparation of financial statements, such as the income statement, cash flow statement, and balance sheet. The Importance of the Matching Principle. ![]()
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