Explain the ‘matching’ concept

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Matching Concept

An important objective of business is to determine profit periodically. It is necessary to match ' revenue ' of the period with the 'expenses' of that period to determine correct profit ( or loss ) for the accounting period . Profit earned by the business during a period can be correctly measured only when the revenue earned during the period is matched with the expenditure incurred to earn that revenue. It is not relevant when the payment was made or received . Therefore, as per this concept, adjustments are made for all outstanding expenses and prepaid expenses .

In brief, according to this concept , the expenses for an accounting period are matched against related revenues, rather than cash received and cash payment . This concept should be followed while preparing financial statements to have a true and fair view of the profitability and financial position of a business firm.

ekkarill92 answered 2 years ago

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