Matching Principle

The matching principle requires that expenses be recorded in the same period as the revenues they help generate.

Explanation:

• This principle ensures financial statements reflect true profitability.
• It matches costs with revenue to show cause-effect relationships.

Example:
Wages paid in January for work done in December are recorded as December expenses.

Importance:
Improves accuracy in net income reporting and supports accrual accounting.

Common Confusion:
People often record expenses when paid rather than when incurred, violating the matching principle.