Matching Concept

The matching concept is an accounting principle that requires the identification and recording of expenses associated with revenue earned and recognized during the same accounting period.

In order to reach accurate net income figure, the expenses incurred to earn the revenues recognized during the accounting period should be recognized in that time period and not in the next or previous. This is called matching principle of accounting.

Example:

$40,000 worth of sales is made in 2011. Total purchases of inventory were $30,000 of which $1000 remained on hand at the end of 2011. The cost of earnings is $40,000 revenue is $29000 [$30000 minus $1000] and this should be recognized in 2011 thereby yielding a gross profit of $11000.