Lecture 2 : Financial Statement : Profit and Loss Account
Matching Concept
The matching concept is an accounting practice whereby expenses are recognized in the same accounting period when the related revenues are recognized.
The matching concept thus helps avoid misstating earnings for a period. Reporting revenues for a period without reporting the costs of producing those revenues would result in overstated profits.
Prepaid and outstanding Expenses:
Matching concept is based on the accrual concept as it considers the occurrence of expenses and income and do not concentrate on actual inflow or outflow of cash. This leads to adjustment of items like prepaid and outstanding expenses.
