Page 24 - Book-keeping for Secondary Schools Student’s Book Form One

Book-Keeping for Secondary Schools

financial activities of a business should representation of the business’s financial
be divided into specific and meaningful performance. According to the matching
time periods for reporting purposes. This principle:
principle allows for the systematic and (a) Expenses should be recognised when
regular preparation of financial statements, the related revenue is recognised:
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providing timely and relevant information When a business earns revenue from
to users. the sale of goods or the provision of
services, it should also recognize the

Under this principle, the financial year expenses directly associated with
is divided into shorter periods, such as generation of that revenue in the
months, quarters or years, depending on same period. This ensures that the
the reporting requirements and industry costs incurred to generate revenue are
practices. Financial transactions and properly matched with the revenue in
events are recorded and summarised the financial statements.
within these designated time periods, (b) Expenses should be recognised in
enabling the preparation of interim and a systematic and rational manner.
annual financial statements. The time The matching principle requires
period principle helps to facilitate the expenses to be recognised in a logical
analysis and comparison of financial and consistent manner over the
information over different periods. By accounting periods. It discourages the
breaking down the financial activities recognition of expenses only when
into uniform time intervals, it allows payment is made or received.
stakeholders to assess the business’s
performance, identify trends, and make By following the matching principle,
informed decisions based on up-to-date businesses can provide more accurate
information. meaningful measure of performance.

It allows users of financial statements
Matching principle to assess the profitability and financial
This is a fundamental accounting performance of a business by matching
principle that guides the recognition of the expenses directly to the revenues they
expenses in financial statements. It states helped to generate.
that expenses should be recognised and
recorded in the same accounting period Example 2.1
in which they are incurred to generate An enterprise sells products in February but
revenue. The principle aims to achieve
a proper matching of expenses with had incurred the associated manufacturing
the revenues earned during a specific costs in November. The matching principle
period. This provides a more accurate requires matching the costs incurred in

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Student’s Book Form One

Book Keeping Form 1 New 2024 FINAL.indd 16 18/10/2024 10:14