Matching Principle
The rule requiring expenses to be recognized in the same period as the revenues they helped generate, ensuring accurate measurement of period profitability.
Matching Principle
The accounting principle requiring expenses to be recognized in the same period as the revenues they helped generate, ensuring that the financial statements reflect the proper relationship between revenues and expenses.
For instance, a software company that pays sales commissions when contracts are signed would spread the expense recognition over the service period if the revenue from those contracts is recognized over time.
The matching principle is fundamental to accrual accounting and ensures that financial statements accurately reflect the economic performance of each period. It requires accountants to make careful judgments about the timing of expense recognition, especially for costs that benefit multiple periods.