Matching revenues and expenses is called "Matching concept" of Accounting.
True
By matching revenues and expenses in the same period in which they incur, net income or loss will be properly reported on the income statement.
Matching
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.
True
By matching revenues and expenses in the same period in which they incur, net income or loss will be properly reported on the income statement.
The matching principle
Matching Principal
Matching
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.
Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of
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.
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.
Revenues are earnings from sales of products and net income is the difference between revenues and expenses.