Define Matching Concept? Give Reason Why a Business Concern Should follow this Concept.

By K Balaji|Updated : October 3rd, 2022

The Matching concept in accounting is defined as a practice where the business firms recognize the revenues earned and the expenses incurred to earn that revenue in the same accounting period. For example, following this concept, depreciation on an asset is deducted on a yearly basis over the life of the asset instead of deducting the entire value of the asset at once after its retirement. Learn why a business concern should follow the matching concept in this article in detail.

Why a Business Concern should follow the Matching Concept?

The Matching concept is an accounting practice that every business concern should follow because of the following reasons:

  • It reflects the actual financial position of the company.
  • Through the matching concept, revenue and expenses are aligned with each other, so there is little chance of making or minimizing profit or loss.
  • It portrays the revenue earned and expenses incurred in an accounting year in the same period itself whether they are accrued/outstanding.
  • Expenses incurred to buy a capital expenditure that will benefit the business in the next few years cannot be charged in one accounting period, thus the Matching concept allows firms to charge the depreciation on an asset over its useful life.

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FAQs on Business Matching Concept

  • The Matching concept in Accounting is a practice to record revenues and expenses in the books of accounting such that the accrued revenues and the outstanding expenses are also recorded in the period in which they are earned/occurred and not at the time of actually paying/giving the money.

  • It is important for a business concern to follow the Matching concept as it allows them to depict a true financial position of the firm where the expenses incurred to earn revenues are getting recorded at the time of the transaction, and not at the time of actually paying the money.

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