2 min read
Definition
The matching principle is the accounting rule that costs should be recognised in the same period as the income they help to generate, regardless of when cash actually changes hands.
In plain terms
If you buy stock in March and sell it in May, the cost of that stock belongs in May's accounts alongside the sale — not March's, when you paid for it. Matching gives a truer picture of what each period actually earned.
Why it matters for your company
Matching is why accruals, prepayments and stock valuation exist, and why accrual accounting can show a profit different from your cash. Understanding it explains why profit and cash diverge.
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