![]() ![]() Here, let me give you an example, let's say Lou decides to sell lawn mowers, the big kind. There'd be no way to tell what's going on, yes I still ate it, and yes it was still good. They like that pizza dropped coming out of the shop last night, chaos one month it looks like you're rolling in dough, the next you're up to your eyeballs and expenses. > So why does this all matter? If you don't match up your expenses with your revenue, then your books are going to be often unreliable. All of those things can be really helpful and really provide more insight for the clients. So as we're running reports, thinking through how the client will get this data, what they will do with that data, how they will see the income and the expenses together in potentially the same period, or related to the same project, or customer, or business structure, or business line, revenue line. And going beyond just the data entry mindset of what it used to be to be a bookkeeper to now being really much more in a position to advise our clients, and provide reports that are really meaningful to them that also help them run their business. But as bookkeepers, there's multiple ways that we can talk about that matching principle, and so thinking through that and helping the client understand that is really helpful as you're advising them. ![]() It could also be based on lines of business where we're matching income and expenses by line of business, in addition to matching it across periods when we're talking about it from a true accounting standpoint. ![]() That is really helpful also because many times clients are not able to see those things together very easily. So for example, can we match income and expenses by entity, for example, a customer or a project. One of the ways that the matching principle can also be used is based on the types of things that we're able to do in certain accounting programs. It's important also because of things like payroll, so when we think about payroll, when is the matching happening? Is it when it was paid, or when that pay period happens? And so understanding when to record transactions and and things like that, that's really helpful for the client. ![]() So when is the income earned in the expenses incurred related to each other? And that's really helpful when we are doing books for our clients so that if they for example, received in a big contract and it's $100,000, then when are those expenses incurred? And if we're able to match those together, it helps them really understand what their real profit is in that situation. The whole idea around the matching principle is that we want to match expenses and income to the period that it's relevant to. > The matching principle is one of those concepts that we tend to forget sometimes, but we really need to be thinking about. This thing is great, it means when a business earned revenue, money during the reporting period, all expenses spent during the same reporting period should be matched up and factored into the same financial statement. And business activity doesn't stop just because the year ends, because of that, we have a handy dandy matching principle. Sometimes store can’t collect the money and have to write off the receivable as a bad debt because it will never be collected.A business is activity is fluid, like water, which means you can't have revenue without taking on some expenses. Not all customers actually pay off their store credit cards. One expense that retailers that offer credit to customers is bad debt. This means that any costs associated with these extended terms should be recognized and recorded as the revenues are recorded. In a sense, these extended terms help generate extra sales. That’s why just about every department store offers its own store credit card. When retail stores allow customers to take additional and extended lines of credit with their stores, the customers tend to purchase more merchandise. So an expense should be recorded in the same period as the corresponding revenue. The matching principle simply states that related revenues and expenses should be matched in the same period. Businesses must incur costs in order to generate revenues. In other words, the matching principle recognizes that revenues and expenses are related. Definition: The matching principle is an accounting principle that requires expenses to be reported in the same period as the revenues resulting from those expenses. ![]()
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