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Matching revenues and expenses is called "Matching concept" of Accounting.
Accrual basis accounting system is based on the concept of matching principle which dictates that revenues of same fiscal year should be matched with expenses of same fiscal year.
The Matching Concept: A significant relationship exists between revenue and expenses. Expenses are incurred for the for the purpose of producing revenue. In measuring net income for a period, revenue should be offset by all the expenses incurred in producing that revenue. This concept of offsetting expenses against revenue on the basis of "causes and effect" is called the Matching Concept. The term 'matching' means appropriate association of related revenues and expenses. In matching expenses against revenue the question when the payment was made or received is 'irrelevant'. For example if a salesman is paid commission in January, 2001, for sale made by him in December, 2000. According to this concept commission expense should be offset against sales of December 2000 because this expense is incurred for producing revenue in December 2000. On account of this concept, adjustments are made for all outstanding expenses, accrued revenues, prepaid expenses and unearned revenues, etc, while preparing the final accounts at the end of the accounting period.
The accruals concept, otherwise known as the matching concept as it's purpose is to match expenses and revenue to each other in the correct accounting period.
Matching concepts advocates the matching of one fiscal year revenues with same fiscal year expenses while revenue recogition concepts advocates the no revenue can be recognised until product is not transferred to third party.
Matching revenues and expenses is called "Matching concept" of Accounting.
The accrual concept concerns the matching of costs and revenues for the reporting period.
Accrual basis accounting system is based on the concept of matching principle which dictates that revenues of same fiscal year should be matched with expenses of same fiscal year.
The Matching Concept: A significant relationship exists between revenue and expenses. Expenses are incurred for the for the purpose of producing revenue. In measuring net income for a period, revenue should be offset by all the expenses incurred in producing that revenue. This concept of offsetting expenses against revenue on the basis of "causes and effect" is called the Matching Concept. The term 'matching' means appropriate association of related revenues and expenses. In matching expenses against revenue the question when the payment was made or received is 'irrelevant'. For example if a salesman is paid commission in January, 2001, for sale made by him in December, 2000. According to this concept commission expense should be offset against sales of December 2000 because this expense is incurred for producing revenue in December 2000. On account of this concept, adjustments are made for all outstanding expenses, accrued revenues, prepaid expenses and unearned revenues, etc, while preparing the final accounts at the end of the accounting period.
The accruals concept, otherwise known as the matching concept as it's purpose is to match expenses and revenue to each other in the correct accounting period.
basic matching concept of account is that all expenses of same fiscal years should be matched with revenues of that fiscal year and depreciation is also charged for that portion of asset which is used in specific fiscal year.
Matching concepts advocates the matching of one fiscal year revenues with same fiscal year expenses while revenue recogition concepts advocates the no revenue can be recognised until product is not transferred to third party.
Accrual concepts use the matching of expenses to get an overall picture of a person's account. A realization concept is based on the results of the accrual process.
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The Matching Principle is a rule that requres that expenses be recorded and reported in the same period as the revenue that those expenses help earn. It is a fundamental concept of accrual accounting as it is the association between the economic benefits (revenue) and economic cost (expenses) that is used to calculate profit (which is a measure of performance).
The Matching Principle is a rule that requres that expenses be recorded and reported in the same period as the revenue that those expenses help earn. It is a fundamental concept of accrual accounting as it is the association between the economic benefits (revenue) and economic cost (expenses) that is used to calculate profit (which is a measure of performance).
Advantages: Easy to use Matches Cost to revenues (Matching Concept) Disadvantages: Depreciation can not be charged when the Asset is not in use.