Meaning of Matching Concept:

The matching concept is a fundamental accounting principle that emphasises that expenses incurred in an accounting period should be matched with revenues during that period. According to this concept, the revenue and expenses incurred to earn these revenues must belong to the same accounting period.

Purpose and Application:

The process of ascertaining the amount of profit earned or the loss incurred during a particular period involves deduction of related expenses from the revenue earned during that period. The matching concept emphasises exactly on this aspect of accounting.

Implications of the Concept:

The matching concept implies that all revenues earned during an accounting year, whether received during that year or not, and all costs incurred, whether paid during the year or not, should be taken into account while ascertaining profit or loss for that year.

Why Business Should Follow This Concept:

A business concern should follow the matching concept because it ensures that the financial statements reflect the true profit or loss for a particular accounting period. Without matching revenues with their related expenses, the profit figure would be inaccurate and misleading.

Conclusion:

The matching concept is essential for preparing reliable financial statements. It forms the basis for accurate measurement of periodic income and helps stakeholders make informed decisions based on correct financial performance data.