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Wednesday 16 March 2011

Accounting principles and Policies

8. Matching Concept:
This is based on the Accounting Period Concept. The main object of running a business is to each profit. In order to ascertain the profits, made by the business during a period, it is necessary that’ ‘Revenues’ of the period should be matched with the ‘Cost or Expenses’ of that period. The effect of this principle can be summarized as follows:

(a) When an item of revenue is entered in the profit and loss account, then all the expenses, incurred to earn that income (whether paid or not) should be entered on the expenses side.
(b) When some amount is spent in the current year, and the income against it will be earned in the subsequent years, then the expenditure should be shown in the subsequent years, when the income is earned.

It is due to the concept that necessary entries are made for outstanding expense, prepaid expenses, accrued income and unaccrued income in the books of accounts

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