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Matching Concept(in detail) Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
FAQs on Matching Concept(in detail) Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
| 1. What is the matching concept in accounting? |  |
The matching concept in accounting is a principle that requires expenses to be recognized in the same period as the revenues they generate. This means that expenses should be recorded in the accounting period in which they contribute to earning revenue. The matching concept ensures that the financial statements accurately reflect the financial performance and position of a company.
| 2. How does the matching concept affect the recognition of expenses and revenues? | |
The matching concept dictates that expenses should be recognized in the same period as the revenues they help generate. This means that expenses must be matched with the revenues they directly or indirectly contribute to. For example, if a company sells a product in January, the cost of producing that product should be recognized as an expense in the same January period when the revenue is recorded.
| 3. Can you provide an example of how the matching concept is applied in practice? | |
Certainly! Let's say a company provides a service to a customer in December but receives payment for that service in January of the following year. According to the matching concept, the revenue should be recognized in December when the service was provided, even though the payment is received in January. This ensures that the revenue and the associated expenses (such as wages or materials used to provide the service) are recognized in the same period.
| 4. What happens if the matching concept is not applied in accounting? | |
If the matching concept is not applied in accounting, it could lead to inaccurate financial statements. Expenses that are not properly matched with revenues can distort the financial performance of a company, making it difficult to assess its true profitability. Not applying the matching concept can also result in misleading information for investors, lenders, and other stakeholders who rely on financial statements for decision-making.
| 5. Are there any exceptions to the matching concept in accounting? | |
Yes, there are some exceptions to the matching concept. One common exception is the recognition of pre-paid expenses or deferred revenues. These are expenses or revenues that are paid or received in advance but are recognized as expenses or revenues over multiple accounting periods. For example, if a company pays for insurance coverage for the next year in advance, the expense is recognized over the coverage period rather than all at once. Such exceptions are made to ensure the matching concept is still followed in situations where the timing of cash flows does not align with the recognition of expenses and revenues.
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