![]() ![]() ![]() Sometimes we have things like this where we're using up an asset, creating a liability, things like that.This article will discuss the concept and implementation of the Matching Principle, its benefits and challenges, its role in International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), and tips for effective implementation, with a focus on the Indian context. ![]() And that's the whole difference between accrual accounting and cash basis accounting is, well, sometimes it does line up with the cash, but not always right. It has nothing to do with the cash outflow. And I just want to note that it's the occurrence of the event, right? That event being us receiving some sort of benefit that causes the need of the expense record. So we'll have to create a liability for that. Sometimes we create a liability right? Sometimes we receive the benefit for something but we haven't paid for it yet. Then we have to take the expense this period. We received the benefit of using those supplies during this period. Well, we have to take an expense for all this stuff that we've used up since we used it during this period. And throughout the years we're grabbing stuff out of the closet and using it up. Okay? So we might have a supply closet full of office supplies, pens, papers, no pads, clipboards, whatever. Sometimes we're using up an asset, such as supplies. But other other times it's not just gonna be for paying for something with cash. So I want to make a quick note about expenses here, is that sometimes students get tripped up with this, that we don't always pay cash, right? Some expenses are gonna be paid in cash, right? Maybe we just had employees work for two weeks and then we paid them and the expense came up and we paid them, right? And we have the cash the expense right there. So we we want to take the expense when we receive the benefit. But the idea here is that just matching those revenues with the expenses. So we would take uh one month's worth of the expense, so like 1/12 of the expense each month throughout the year. We want to take those expenses as they come. Well, let's think about if we're just doing the first month of the rental agreement, we don't want to include the whole expense of the whole year, right? We want to only include the one month that's passed, right? So we want to match when we earn when we receive those benefits, right? The benefits of renting the space and using the space. ![]() But just as an example, um let's say you pay for a rental agreement, right? You pay for a rental agreement for a whole year. Okay? So we're gonna see some examples of different expenses and when we record them as we continue. So think about when we receive the benefit and that's when we need to record the expense. So generally the way we want to think about it is when we receive the benefit. So we want to consider all the expenses during the period that we earned the revenue as the expenses for that period. We sold these t shirts, but what did it cost us during this period. What did it cost us to earn that revenue? Right. Right? We earned this this revenue in this period. Okay, so the idea here is that we're matching, we're matching the expenses to the revenues. Okay, So when do we record expenses? So this is the whole thing with the matching expenses are recorded in the same period as their related revenues. So we have the revenue recognition principle for revenue and the matching principle for expenses. Okay, The matching principle tells us when to record expenses. So what we use in gap is what's called the matching principle. We're gonna need tutors to be the tutors, right? All sorts of expenses to be able to sell the product to the customer. We're gonna need people at the cash register. Right? There's gonna be some sort of expenses we need, we're gonna need sales people. So generally what's gonna happen is we got to incur expenses to earn revenue. We are providing services to others expenses. And remember that expenses, these are the value of goods and services that the company that we receive, right, compare that to revenue revenue. So let's continue here with expense recognition. ![]()
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