Today we will know about the Matching Principle in Accounting. In a very different and easy way with example.
According to matching principle, expenses incurred in business must be charged to the income statement in the same accounting period in which the related revenue is earned. For example, A machine purchased for rupees 1,00,000 that has its estimated useful life of 10 years. Cost of 1,00,000 will not be charged in income statement on the same year when it was purchased, but will be charged for 10 years till it is being used in business. In that case, 10,000 per financial year for 10 years will be appropriate to charge in statement of account. So, Depreciation of fixed assets is charged to the profit & loss against its usage and useful life.
