Definition of Matching Concept (Convention or Principle) of Accounting:
Matching concept (convention or principle) of accounting defines and states that “while preparing the income statement, revenue and profits are matched with the related expenses incurred in generating them”. Though the business as a going concern is expected to run its operations for foreseeable future yet there is a dire need to determine its periodical profitability performance.
Explanation, Use and Application:
Matching concept of accounting further implies that the revenues are recognized when they are earned and expenses are accounted for when they are incurred or benefits are received from these expenses, rather than when the related receipt or payment of cash takes palace.
The application of matching concept of accounting is not an easy task. The determination of life or residual value of a non-current asset may cause problem for calculating correct depreciation charge. Problems may also arise when determining the provision for doubtful debts. An item appearing in current year’s income statement should better appear in last year’s income statement or be deferred to the following yer. The accountants should therefore make their best efforts to apply the concept in its true spirit.
(1) A non-current asset lasts for many years so its cost is not written off all in the income statement at once. Instead depreciation is charged in the income statement over the asset’s estimated useful life. Thus, cost of the asset is “matched” with its benefits over its estimated useful life.
(2) A paper company buys a truck of notebooks in June to resell to customers over the next several months, it does not record the cost of all those notebooks in June. Rather it records the cost of each notebook on the income statement when the notebook is sold.
(3) The matching principle even extends to items like taxes. A company may pay its tax bill once a quarter, but every month the income statement includes a figure reflecting the taxes owed.