Matching Principle
Recording expenses in the same period as the revenue they helped generate.
Definition
The matching principle requires recording expenses in the same accounting period as the related revenue. If you sell a product in December, the cost of that product should be expensed in December—even if you paid for it earlier or will pay later.
This principle ensures financial statements accurately reflect profitability by pairing revenue and the costs incurred to generate it. It's a core component of accrual accounting.
Why It Matters
Matching prevents distortion of profitability. If you expense all inventory costs when purchased rather than when sold, profitable periods look less profitable (too much expense) and unprofitable periods look better (too little expense).
Common matching applications: cost of goods sold (matched to sales), sales commissions (matched to sales), depreciation (matched to asset usage over time).
Examples
- 1
Sell product in March, recognize COGS in March—even if inventory was purchased in January.
- 2
Pay annual insurance premium in January $12,000—expense $1,000/month for 12 months to match coverage period.
- 3
Sales commission earned when sale is made (December), paid in January—accrue expense in December to match revenue.
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