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# Matching Revenue and Expenses - Matching Principle:

Learning Objectives:

1. Define and explain the term "matching principle".

To determine net profit for any particular accounting period, we use the matching principle. The word matching refers to the close relationship that exists between certain expenses and the revenue realized as a result of incurring these expenses. In other words, revenues of the relevant accounting period should be matched against the expenses of the same period to ascertain profits or losses made by the business.

In the form of an equation it may be stated that:

 Profit = Revenue - Expenses

Again it should be noted that this year's expenses are associated with this year's revenue. We do not compare this year's expenses with last year's revenue because there is no close relationship between the two.

 » Definition and Explanation of Final Accounts » Trial Balance - A Starting Point for Final Accounts » Meanings and Sources of Revenue » Direct and Indirect Expenses » Matching Revenue and Expenses » Trading Account » Profit and Loss Account » Difference between Trading Account and Profit and Loss Account » Difference between Gross Profit and Net Profit » Balance Sheet » Difference between Trial Balance and Balance Sheet » Example of Trading and Profit and Loss Account and Balance Sheet

A D V E R T I S E M E N T

 Financial Accounting Topics Introduction to Accounting ---------------------------------------------------------------------------- Transactions and Accounting Equation ---------------------------------------------------------------------------- Analysis of Business Transactions ---------------------------------------------------------------------------- Journal, Ledger and Trial Balance ---------------------------------------------------------------------------- Accounting for Bills of Exchange ---------------------------------------------------------------------------- Special Journals ---------------------------------------------------------------------------- Cash Book ---------------------------------------------------------------------------- Bank Reconciliation Statement ---------------------------------------------------------------------------- Final Accounts ---------------------------------------------------------------------------- Work Sheet ---------------------------------------------------------------------------- Capital and Revenue Items ---------------------------------------------------------------------------- Valuation of Inventories ---------------------------------------------------------------------------- Accounts of Non-profit Making Organizations ---------------------------------------------------------------------------- Statement of Cash Flows ---------------------------------------------------------------------------- Accounting Ratios Analysis ---------------------------------------------------------------------------- Depreciation, Provisions and Reserves ---------------------------------------------------------------------------- Accounting Dictionary ---------------------------------------------------------------------------- Financial Calculators

 Managerial Accounting Topics Financial Statements ---------------------------------------------------------------------------- Cost Volume Profit Relationship ---------------------------------------------------------------------------- Variable Costing System ---------------------------------------------------------------------------- Materials and Inventory Cost Control ---------------------------------------------------------------------------- Activity Based Costing System ---------------------------------------------------------------------------- Standard Costing and Variance Analysis ---------------------------------------------------------------------------- Balanced Scorecard ---------------------------------------------------------------------------- Capital Investment Analysis/Capital Budgeting