The Matching PrincipleYour organization may prefer to use the matching principle when deciding how to record its financial performance. This is because it enables your financial accounts to show a better evaluation of actual profitability and performance. This principle achieves this by minimizing, wherever possible, the mismatch in timing between when your organization incurs costs and when it realizes its revenue. This still has to be attained whilst adhering to the accounting standards of recording costs as they occur and revenue when it is earned.
The degree to which this can be achieved will be influenced by how complex your operations are. The more complicated they are, the more difficulty your organization will have in ‘matching’ the date costs occur with the date revenue or income is received.
This is especially true in the case of provisions for bad debt and depreciation. It is difficult to be exact in such cases because they are influenced by numerous factors, and many, such as changes within the economic climate, are outside of an organization’s control. The way in which an organization can interpret an item of high-value capital equipment designed for longevity is open to interpretation, and a new model or changes in technology can drastically alter its life span.
The accounting standards and regulations of your operating country will dictate how such items are represented in your organization’s published accounts. If you are required to produce such figures for internal use then you need to adhere to its internal definitions.
This is especially true in the case of provisions for bad debt and depreciation. It is difficult to be exact in such cases because they are influenced by numerous factors, and many, such as changes within the economic climate, are outside of an organization’s control. The way in which an organization can interpret an item of high-value capital equipment designed for longevity is open to interpretation, and a new model or changes in technology can drastically alter its life span.
The accounting standards and regulations of your operating country will dictate how such items are represented in your organization’s published accounts. If you are required to produce such figures for internal use then you need to adhere to its internal definitions.KEY POINT
- The matching principle aims to minimize any mismatch in timing between when an organization incurs costs and when it realizes any associated revenue.
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