In this post we have discussed matching concept in accounting.
|The process of ascertaining the amount of profit earned or the loss incurred during a particular period involves deduction of related expenses from the revenue earned during that period.|
|States that the revenue and the expenses incurred to earn the revenues must belong to the same accounting period.|
|In short the revenue and expenses incurred to earn these revenues must belong to the same accounting period|
|Revenue is recognised when a sale is complete or service is rendered rather when cash is received.|
|Similarly, an expense is recognised not when cash is paid but when an asset or service has been used to generate revenue.|
|For example, expenses such as salaries, rent, insurance are recognised on the basis of period to which they relate and not when these are paid. Similarly, costs like depreciation of fixed asset is divided over the periods during which the asset is used.|
|It is very helpful for the investors/shareholders to know the exact amount of profit or loss of the business.|