Introduction
It is one of the important accounting principles and is the basis of many accounting requirements set out in either of generally accepted accounting principles or alternatively International financial reporting standards. Think for a moment if it appropriate that you match the revenues in relation to the specific period of time with the expenses that related to another period. Such profit figure is not true and does not demonstrate the true picture of the financial operations.
The literal meaning of the word matching is to make sure that two things are corresponding, equal or equivalent in certain characteristic. Likewise, in the accounting language, the matching concept requires to match and compare the revenues and expenses that relate to the same period. This way it enhances the qualitative characteristics of the financial statements that is comparability and understanding and helps the organization to demonstrate the true picture of the profitability of the operations of the organization. In this way, the stakeholders of the organization that is the investors, creditors, employees and others can make informed decisions.
Explanation
The matching concept is particularly applied in relation to the accrual principle. The accrual principle requires the accountants to recognize the gains and the expense of the specific organization keeping in consideration the actual occurrence of the transactions and ignoring the actual receipt or payments of the cash flows. In this way, the revenues and the expense of the particular period are compared and it manifests the real picture of the profitability in relation to the organization.
Auditor and the Matching Concept
Auditors have quite procedures that can demonstrate and establish that the matching concept is applied. For instance, they used to perform cash count and stock count at the end of the period and this ensures that the figure cash and the stock are correctly reported at the end of the reporting date and the corresponding figures of payments and the stock consumption are truly representative of the accounting period covered up to the end reporting date. The further payments or consumption of the sock will not be recognized in the current period accounts.
Cash basis of accounting and the Matching concept
Cash basis of accounting is opposite to not only the accrual basis of accounting but the matching concept as well. In the cash basis of accounting all the receipt or the payments in relation to the cash flows with regard to the certain accounting period irrespective of the fact that receipt or the payment of the cash flow is in relation to the revenue and expense of this period, prior period or any subsequent period and this way the receipt and payment account is not truly the representative of the financial operations of the organization.
Conclusion
In the nutshell, matching concept requires to match and compare the revenues and expenses that relate to the same period. This way it enhances the qualitative characteristics of the financial statements that is comparability and understanding and helps the organization to demonstrate the true picture of the profitability of the operations of the organization. In this way, the stakeholders of the organization that is the investors, creditors, employees and others can make informed decisions. The matching concept is particularly applied in relation to the accrual basis of the preparation of the accounts.
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