Accounting Principle: The Matching Principle
The matching principle of accounting is one of the basic principles of accrual base accounting. This principle states that when a business is going to record its revenues it must also record the expenses related to that revenue. These are the expenses that are directly related to the revenue and are also called as matching expenses to the revenues. This principle states that there is a cause and effect relationship between the revenue generated and expense incurred so they must be recorded at the same time. There are several expenses and revenues that fall under the category of matching principle and they can be explained as under.
One of the basic examples of matching principle is the commissions paid by the business and earned by sales men and other employees. For example if a sales man earned 10 percent commission on each sale that is made in January the expense of paying the commission must also be recorded in the same month. Depreciation associated with assets is another form of recording the revenue and expense on the biases of matching principle. For example a company purchases a machine asset of $100, 000 and the useful life of the machine is projected to be 10 years the depreciation expense is say 10,000 for ten years that must be recorded at the same time as revenue were recorded.
Another expense that can be used as an example of matching principle is that of wages. For example employees work from 23rd April to 30th April and wages are paid to the employees on 5th of April. However the employer must record the wage expense in the expense of March rather than recording the expense in April.