Matching principle example. But the matching principle may require the borrower to recognize this cost gradually over the life of the bond issue. If expenses were reported as soon as they occurred, then company statements would be very … The matching principle states that expenses should be recognized and recorded when those expenses can be matched with the revenues those expenses helped to generate. Various attempts are being made to ext The Matching Principle. To better understand how this concept works in the real world, imagine the following matching principle example. This example is designed to illustrate the importance of the matching principle as, even though the materials were purchased in year 1, they weren’t sold until year 2. The matching principle helps to keep the financial statements a useful and fair representation of results. Under this, a company should report an expense in the income statement in the same period when it earns the revenue. An example of revenue recognition would be a contractor recording revenue when a single job is complete, even if the customer doesn’t pay the invoice until the following accounting period. The matching principle helps businesses avoid misstating profits for a period. Certain financial elements of business also benefit from the use of the matching principle. The Matching Principle It’s likely that at some point in your life, you’ve purchased a big item that cost a lot of money, whether it was a car, a refrigerator or a similar item. 3. Matching Principle is a common accounting concept. In other words, expenses shouldn't be recorded when they are paid. It's likely that at some point in your life, you've purchased a big item that cost a lot of money, whether it was a car, a refrigerator or a similar item. The matching principle is an accounting concept that matches revenues with the expenses that were incurred in order to generate those revenues in the first place. 2. Put it simply, a company must recognize expenses on the financial statements when it produces the revenue as a result of those expenses. The matching principle is a fundamental practice of accounting that states that expenses are reported for the same period as related revenue. The Matching Principle and Cause and Effect. The clearest and most straightforward example of matching expenses with revenue is the cause and effect relationship illustrated in cost of goods sold and revenue. When a product is sold, the most direct cost incurred is the cost of the product. In simple terms matching concept means, in relation to a given time period, the expenses that are recorded in the financial statements of a company must be related to the revenues generated in the exact same period. 22 sentence examples: 1. Matching principle is one of the most fundamental concepts in accrual accounting. For example, an expense that is recognized earlier than it is appropriate results in a lower net income. 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