What is the concept "Matching Expenses with Revenue" mean?

Question

Accounting

Answer 1

"Matching expenses with revenues" applies to corporations which derive more than one type of revenue. The concept is to develop an accounting system that will match each revenue stream with its associated expenses, so that the company can determine the profit margins from each type.

For example, suppose that a manufacturer makes computer monitors, including the old CRT and the new LCD types. It is rather easy for the company to track its revenue from CRT and LCD sales, but the company will also want to track the expenses of each by matching CRT revenue with CRT expenses, and by matching LCD revenue with LCD expenses. This type of accounting is called "cost accounting" and is more difficult -- think of how difficult it would be to calculate the expenses if the assemblers worked on both CRT and LCD assembly every day.

Hope this helps.

Answer 2

This accounting principle requires companies to use the accrual basis of accounting. The matching principle requires that expenses be matched with revenues. For example, sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid. If a company agrees to give its employees 1% of its 2006 revenues as a bonus on January 15, 2007, the company should report the bonus as an expense in 2006 and the amount unpaid at December 31, 2006 as a liability. (The expense is occurring as the sales are occurring.)

Answer 3

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What is the concept "Matching Expenses with Revenue" mean?
Accounting