Accounting Dictionary

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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