![]() For example, if a salesperson makes a commission off of their product sales, they invoice the customers in December to match all December costs associated with creating and delivering the products. The matching principle requires product costs to be recognized in the same timeframe as the one when a company recognizes revenue. The product cost is the total amount of cost associated with a product regarding its acquisition and production. Related: Learn About Being an Accountant Product costs You record expenses when they're incurred rather than when you receive payment. This is the case even if you don't pay the expense until the following month. For example, if the company completes work in January, the expense becomes part of the January financial statements. You record these costs as expenses on an income statement during the timeframe the company receives them. Commissions, rent, wages or office supplies are all examples of period costs. Period costs are the costs that aren't related to a product. Here are the two components of the matching principle: Period costs Matching the expenses and revenues allows investors to determine consistency in a company's financial statements. This means that you record them as they're incurred rather than when you receive payment. Because recording items requires accrual entry, the matching principle is part of the accrual accounting system. It's an accounting concept that requires you to record any cause-and-effect relationship between the expenses and revenues simultaneously. The company doesn't record expenses when they're paid, but as it receives revenue. ![]() The matching principle stipulates that a company matches expenses and revenues in the same reporting period. In this article, we define the matching principle, explain its benefits and provide examples of it in use. ![]() Businesses use the matching principle to better prepare documentation with accurate reporting. One such principle is the matching principle. When businesses interpret financial statements, they prepare and calculate those statements in a certain manner to abide by proper accounting principles. ![]()
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