The matching principle is an accounting theory that specifies that expenses and associated revenues should be recognised in the same reporting period.
The matching concept combines accrual accounting (in which revenues and expenses are recorded as they are incurred, regardless of when cash is received) with the revenue recognition principle in practise (which states that revenues should be recognised when they are earned or realised, no matter when cash is received).
Cash accounting does not apply the matching principle because revenues and expenses are only recorded when money changes hands.
Why is it important to match?
The matching principle is a fundamental accounting theory that ensures uniformity in a company's financial statements, such as the income statement, balance sheet, and so on.
The financial statements may be severely affected if expenses are recognised at the incorrect time, jeopardising the quality of the statements and offering an erroneous depiction of the business's financial status.
Consider the following scenario:
If you recognise an expense early than necessary, your net income will be smaller.
If you recognise an expense later than necessary, your net income will be larger.
The Matching Principle's Advantages
The matching principle is beneficial to some financial aspects of a business. Assets (especially long-term assets) depreciate, and using the matching principle ensures that depreciation is spread out evenly to balance the incoming cash flow.
The matching principle allows an asset to be dispersed and matched during its useful life in order to balance costs across time.
Debitoor and Matching
By automating the process, Debitoor aims to make matching as simple as possible. You can upload a bank statement and have each payment matched to the relevant invoice or expense if you subscribe to one of our larger plans.
If you connect your PayPal Business account, each payment will be recorded and matched automatically in your Debitoor account.
