The matching concept is an accounting principle wherein the expenses are recognized and recorded in the same accounting period when the revenues are recognized. Matching concept undertakes the expenses of a particular accounting period are the costs of the assets used to earn the revenue that is recognized in that period. In the matching concept the expenses in a period are matched with the revenues generated for the same period; the result is the net income or loss for that period.
The matching concept requires the recognition of all costs that are associated with the generation of the revenue reported in the income statement. Matching concept involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions. This principle states that when the expenses should be matched with revenues. Under the matching principle, when expenses are matched with revenues, they are not recognized until the associated revenue is also recognized. The matching principle allows greater evaluation of actual profitability and performance. It shows how much was spent to earn revenue.
The matching concept may require the knowledge of accrual accounting, which is a practice of recognizing revenues when they are earned and expenses when they are incurred--not necessarily when cash actually flows in those transactions. In the US, accounting concepts the matching concept and accrual accounting are recognized in the GAAP (Generally Accepted Accounting Procedures) and the organizations behind GAAP.
Let us consider an example. Let us consider the salaries of the manager or the administrative staff. These expenses are charged in the Income Statement of the Accounting period in which they are incurred. The matching concept arises from the accounting period concept. The profits of the accounting period are calculated after deducting the costs of the period from the Revenues of the same period. The costs which cannot be associated with the future revenues are written off as they are incurred.
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