![]() ![]() It needs to be done irrespective of the payment. According to this principle, the revenue should be reported and recorded at the time when it is realised. One more accounting principle related to matching principle accounting is the principle of revenue recognition. It is due to the disbursement of the commission being done in February.īesides commissions, there are several examples of this principle, such as depreciation, employee bonus, and wages. Businesses that prefer to use the cash basis of accounting will report their commission expense in February 2022. The company that uses the matching principle in its expenses and revenue record-keeping will report the expense of the commission on its income statement for January 2022. If the business makes sales of ₹40,00,000 in January 2022, it will need to pay ₹400,000 in commission in February 2022. Assume that a business gives out commissions to its representatives at 10% of their sales, disbursed at the end of the month. According to the matching principle, a business must match related revenues and incurred expenses within the same period.Īlso read: Costing: Definition, Objectives, and Advantages Matching Principle ExampleĪn expense needs to relate to the time period that it occurred and not during the actual payment of the invoices. The matching concept or principle has special importance in the accrual accounting concept. This principle works with the concept that a business must incur expenses to earn revenues.ĭid you know? I f an expense is recognised too early, it will reduce net income, and if recognised too late, it will increase net income. For clear and easy tracking, it's ideal that both of them fall within the same time period. According to this principle, a business must keep a record of expenses along with earned revenues. The matching concept in accounting is an accounting principle used for keeping a record of revenues and expenses. ![]()
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