In other words, expenses shouldn't be recorded when they are paid. If expenses were reported as soon as they occurred, then company statements would be very … For example, an expense that is recognized earlier than it is appropriate results in a lower net income. A Deferred expense (prepaid expenses or prepayment) is an asset used to costs paid out and not recognized as expenses according to the matching principle. In simple terms matching concept means, in relation to a given time period, the expenses that are recorded in the financial statements of a company must be related to the revenues generated in the exact same period. It is a sort of “check” for accountants to be sure that the books they are balancing … Certain financial elements of business also benefit from the use of the matching principle. 3. 22 sentence examples: 1. The Matching Principle It’s likely that at some point in your life, you’ve purchased a big item that cost a lot of money, whether it was a car, a refrigerator or a similar item. Matching principle is one of the most fundamental concepts in accrual accounting. It's likely that at some point in your life, you've purchased a big item that cost a lot of money, whether it was a car, a refrigerator or a similar item. The matching principle helps to keep the financial statements a useful and fair representation of results. Various attempts are being made to ext The Matching Principle and Cause and Effect. When a product is sold, the most direct cost incurred is the cost of the product. The matching principle helps businesses avoid misstating profits for a period. The matching principle is an accounting concept that matches revenues with the expenses that were incurred in order to generate those revenues in the first place. Matching principle example. An example of revenue recognition would be a contractor recording revenue when a single job is complete, even if the customer doesn’t pay the invoice until the following accounting period. The Matching Principle. Put it simply, a company must recognize expenses on the financial statements when it produces the revenue as a result of those expenses. Under this, a company should report an expense in the income statement in the same period when it earns the revenue. 2. But the matching principle may require the borrower to recognize this cost gradually over the life of the bond issue. The matching principle is a fundamental practice of accounting that states that expenses are reported for the same period as related revenue. Explain how depreciating an example of the matching principle. This example is designed to illustrate the importance of the matching principle as, even though the materials were purchased in year 1, they weren’t sold until year 2. 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