Matching Principle

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Matching Principle

In accounting we try to deduct expenses on the income statement during the same month we record the income generated by those expenses.

In May John sold $100,000 worth of equipment and was paid a commission of $5,000. May’s income statement should reflect a gross income of $100,000 and expenses of $5,000 resulting in a profit of $95,000. If the company recorded John’s commission in June, May’s income statement would reflect profit of $100,000, over stating the income by $5,000. His commission expense should be reported in the same month as the income that generated the commission.

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