The matching principle says that the costs of earning revenue should be recorded in the same period as that revenue. Profit for a period is then revenue less the expenses that actually generated it.
What it means
Without matching, a period could show revenue but push its costs into another period, distorting profit. Matching pairs them up: if goods are sold this month, their cost belongs this month too. It is the reasoning behind accruals and prepayments, which move costs into the period they relate to, and it is core to the accrual basis.
Where it fits in
In payroll, matching means the cost of a pay run belongs to the period the work was done, even if PAYE and net pay are settled later. This is why payroll costs and liabilities are accrued when the run is processed.
Key rules
- Records expenses in the same period as the revenue they earned.
- Makes a period's profit reflect its true cost.
- Underlies accruals and prepayments.
- Core to accrual accounting.
