Matching Concept and Crediting Closing Stock in the Trading Account

The matching concept is an accounting principle that states that expenses should be recognized in the same period as the revenue they helped to generate. In other words, expenses should be matched with the revenue they helped to earn. This concept is important because it helps to ensure that financial statements accurately reflect a company's performance over a given period.

One way that the matching concept is applied is by crediting closing stock in the trading account. Closing stock refers to the value of the inventory that a company has on hand at the end of a reporting period. By crediting closing stock in the trading account, a company is able to match the cost of goods sold (COGS) with the revenue earned from the sale of those goods.

Here's how this works:

- When a company sells goods, it records the revenue earned from the sale in the trading account.
- At the same time, it records the cost of the goods sold (COGS) in the trading account. This is an expense that is recognized when the sale is made.
- However, if the company still has inventory on hand at the end of the reporting period, the cost of those goods has not yet been matched with the revenue earned from their sale.
- To correct this, the company credits the value of the closing stock in the trading account. This reduces the amount of COGS recorded in the account, and matches the cost of the goods sold with the revenue earned from their sale.

Overall, the practice of crediting closing stock in the trading account helps to ensure that a company's financial statements accurately reflect its performance over a given period. By matching expenses with the revenue they helped to earn, the matching concept provides a more accurate picture of a company's profitability and financial health.

Closing stock if not passed through trading ac would cause to understatement of profit. Closing stock not an expense of current year rather it's an expense of next year. Matching concept is that which makes the revenue of a period matched with the expense of same period to get fair value of statement.