For example: When some expenditure like insurance premium is also paid partly for the next year, then the part relating to next year will be shown as expenditure only next year and not this year. This concept is very important for the correct determination of net profit. It is possible that in the same accounting period, the business may either make or receive payments which may or may not belong to the same accounting period. This leads to either over-casting or under-casting of profit or loss, which may not reveal the actual efficiency of the business and its activities in the relevant accounting period. Similarly, there may be various expenses like purchase of machinery, building etc. These expenses are capital in nature and their benefits can be realized over a period of time. In such cases, only depreciation of such asset is treated as expense and should be taken into account for computing profit or loss for the relevant year. Thus, it is very necessary for any business entity to follow the matching concept.
Business entities mainly follow this concept to ascertain the actual profit or loss during an accounting period. It is possible that in the same accounting period, the business may either make or receive payments which may or may not belong to the same accounting period. This leads to either underestimation or underestimation of profit or loss, which may not reveal the actual efficiency of the business and its activities in the relevant accounting period. Similarly, there may be various expenses like purchase of machinery, building etc. These expenses are capital in nature and their benefits can be realized over a period of time. In such cases, only depreciation of such asset is treated as expense and should be taken into account for computing profit or loss for the relevant year. Thus, it is very necessary for any business entity to follow the matching concept.
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