What is Matching concept? Why should a business concern follow this concept? Discuss. (2024)

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What is Matching concept? Why should a business concern follow this concept? Discuss.? ›

The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period. Firms report "revenues," that is, along with the "expenses" that brought them. The purpose of the matching concept is to avoid misstating earnings for a period.

A business concern should follow the matching concept primarily to confirm the true profit or loss made during the current accounting year or period. In the same year or period, the business concerned may pay or obtain payments that may or may not relate to the current year.

Introduction. The matching principle is a fundamental concept in financial reporting that allows accountants to match a company's expenses with its corresponding revenues in the same accounting period.

Matching Concept: This principle states that it is necessary to charge all the expenses incurred to earn revenue during the accounting period against that revenue, in order to ascertain the net income or trading results of the business.

The purpose of the matching principle is to maintain consistency across a business's income statements and balance sheets. Here's how it works: Expenses are recorded on the income statement in the same period that related revenues are earned.

What is Going Concern Concept. Going concern concept is one of the accounting principles that states that a business entity will continue running its operations in the foreseeable future and will not be liquidated or forced to discontinue operations for any reason.

A business concept is a tool that business owners, entrepreneurs and founders can use to engage with investors or potential stakeholders. An effective business concept helps people provide an outline of their ideas regarding new products and services.

Matching Concept \textbf{Matching Concept} Matching Concept is an accounting practice in which the company's revenue and related operating expenses are recognize, in the same period, and presented in the income statement.

Example: An IT company purchases new servers for INR 5 crores, expected to last 5 years. The company uses straight-line depreciation, allocating INR 1 crore as an annual depreciation expense. This matches the cost of the servers with the revenue they support generating annually.

The main advantage of matching concept is that it allows matching revenue with the expenses to calculate the net profit but it have several disadvantages also the main disadvantage is that sometimes it is very difficult to estimate the actual profit received or benefits received and benefits likely to be received in ...

What does the matching principle apply only to? ›

According to this principle, revenue should be recognized when it is earned, and not when it is received. The matching principle, on the other hand, when applied to revenue recognition, requires the expenses associated with generating that revenue to be recognized at the same time as the revenue.

The matching principle ensures all expenses are recorded when they are incurred during the period and are matched to the cash payments for expenses. The goal of matching is to compute an accurate net income or net loss for the time period.

The Matching Principle states the expenses of a company must be recognized in the same period as when the corresponding revenue was “earned.” Per the matching principle, expenses are recognized once the income resulting from the expenses is recognized and “earned” under accrual accounting standards.

The business entities follow this concept mainly to ascertain the true profit or loss during an accounting period. It is possible that in the same accounting period, the business may either pay or receive payments that may or may not belong to the same accounting period.

The matching principle is related to the revenue and the expense principles. The matching principle states that when you recognize revenue, you should match related expenses with the revenue. The best example of the matching principle concerns the case of businesses that resell inventory.

The going concern concept is a fundamental principle of accounting. It assumes that during and beyond the next fiscal period a company will complete its current plans, use its existing assets and continue to meet its financial obligations.