2/12/2024 0 Comments Matching principle accountingNo money at all may have changed hands.Īnd the “cost” lines of the income statement? Well, the costs and expenses a company reports are not necessarily the ones it wrote checks for during that period. Never mind if the customer hasn’t paid for the product or service yet-the business may count the amount of the sale on the top line of its income statement for the period in question. When a business delivers a product or a service to a customer, accountants say it has made a sale. (Excerpts from Financial Intelligence, Chapter 5 – Profit is an Estimate)Īny income statement begins with sales. ![]() A company may pay its tax bill once a quarter-but every month the income statement includes a figure reflecting the taxes owed on that month’s profits. The matching principle even extends to items like taxes. Rather it records the cost of each cartridge on the income statement when the cartridge is sold. If an ink-and-toner company buys a truckload of cartridges in June to resell to customers over the next several months, it does not record the cost of all those cartridges in June. Here are two examples of the matching principle: Sign up for our online financial statement training and get the income statement training you need. It simply states, “Match the sale with its associated costs to determine profits in a given period of time-usually a month, quarter, or year.” In other words, one of the accountants’ primary jobs is to figure out and properly record all the costs incurred in generating sales, including the cost to make and deliver the product and the sales and administrative support.īecause of the matching principle, the expenses on the statement are not necessarily those things that we purchased that month, or even paid for that month. ![]() The matching principle is a fundamental accounting rule for preparing an income statement.
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