Accounting Concepts Definitions Part : 4 ( The Matching Concept )

                        Accounting Concepts Definitions Part : 4

accounting Concepts

 

6. The matching concept

As far as accounting is concerned, everything here follows a relative boundary. It is not like something visible but, pretty much evident. In this part we will discuss such a boundary known as the matching concept.

This one states about the system in which we record our entity’s revenues and expenses. Believe it or, not- without proper knowledge of this you will not be able to go even an inch in accounting arena, because, if you can’t record your revenue or, expense properly then how come you will get into recording all into accounts?

Now, get an overview of this concept:

“The balance, which derives from assessment of the professional accounts personnel within the company, may be accrued, advanced or, from previous year; should be added to or, deducted from the relevant account.”

This concept looks like unknown from its outset and more so this seems rather under explained in its definition. So, look through the cases to get the best understanding:

Example:

XYZ co. records its revenues and expenses in such form:

Revenues          $7000

Expenditure      $3000

Some additional information (It is expected that you have already gone through all the previous installments and so we have used a bit lax language over here):

  • There are related information for revenues:

Previous year (accrued)  $1000

Previous year (advance) $500

Current year (accrued)    $200

Current year (advance)   $700

So, what will be the actual revenue for this year?

Look here:

Revenue                                               $7000

Add: Advance (previous)                            $500

Accrued (current)                              $200

Less: Advance (current)                              $(700)

Accrued (previous)                          $(1000)

 

See over here. The result is derived by adding some and subtracting some. Why is that?

The amount that is from previous year, if accrued, can be earned in cash in current year and if earned then this overstates the actual amount which is earned in this year. So, this gives a perfect view if it gets subtracted from the revenue amount. Now, coming to the accrued portion of the current year, this is added and the reason behind this is- the revenue, which is not earned, is supposed to be earned this year and even though it was not earned in cash, it would be added to the revenue amount to show the actual amount. Because, without the amount being added or, subtracted; it is not possible to get the amount that is, in total, earned this period.

According to the same explanation, this revenue is reflected without the amount advanced for next year and with the amount advanced from the previous period, because, this amount is advanced for this year.

You get a view of what is added or, subtracted and why. This is really a necessary portion to get what is going on. Watch the next portion:

accounting concepts - the matching concept

The Matching Concept

Now, hope that everything is explained nice and clean. If it is not, then try reading all and get to know deeply all the things.

You are now accustomed to all the things you need to know about recording, calculating and summarizing these according to the concept.

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