Matching principle - What is the matching principle?
The matching principle is an accounting principle which states that expenses should be recognised in the same reporting period as the related revenues
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In practice, the matching principle combines accrual accounting (wherein revenues and expenses are recorded as they are incurred, no matter when cash is received) with the revenue recognition principle (which states that revenues should be recognised when they are earned, no matter when cash is received).
The matching principle is not used in cash accounting, wherein revenues and expenses are only recorded when cash changes hands.
Why matching is important
The matching principle a basic accounting principle that is adhered to in order to ensure consistency in a company's financial statements: i.e. the income statement, balance sheet, etc.
If expenses are recognised at the wrong time, the financial statements may be greatly distorted: in turn jeopardising the quality of the statements and providing an inaccurate representation of the financial position of the business.
- If you recognise an expense earlier than is appropriate, this results in a lower net income.
- If you recognise an expense later than is appropriate, this results in a higher net income.
Benefits of the matching principle
Certain business financial elements benefit from the use of the matching principle. Assets (specifically long-term assets) experience depreciation and the use of the matching principle ensures that matching is spread out appropriately to balance out the incoming cash flow.
The matching principle allows an asset to be distributed and matched over the course of its useful life in order to balance the cost over a given period.
Matching and Debitoor
Debitoor has aimed to make matching as simple as possible by automating the process. By subscribing to one of our larger plans you can upload a bank statement that will then match each payment to the corresponding invoice or expense.
If you connect your PayPal Business account, each payment will be recorded directly to your Debitoor account and matched automatically.