Matching principle
Financial Accounting glossary · The Accounting Cycle & Financial Statements
Definition
Principle of recognizing expenses in the same period as the related revenues.
Matching principle in plain English
The matching principle says you should record an expense in the same time period as the sale it helped create, so the two line up. Why care? Because it shows the true profit of an activity — you see what you earned and what it cost to earn it side by side, instead of in random unrelated months. For example, if a bakery sells a wedding cake in June, the cost of the flour and eggs for that cake should be counted as an expense in June too, even if the ingredients were bought back in May. Match the cost to the revenue it produced, and your profit number actually means something.
Practice Matching principle
What is the required adjusting entry on December 31 to comply with the matching principle?
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