--- title: The Matching Principle | Benefits, Challenges, Examples description: The matching principle states that the revenues and any related expenses are realized and recognized in the same accounting period. --- [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo-white.4f6047d4.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) **[Home](https://www.carboncollectiveinvesting.com/) > [Sustainable Investing](https://www.carboncollectiveinvesting.com/sustainable-investing) >** The Matching Principle # The Matching Principle ![](https://www.carboncollectiveinvesting.com/hubfs/Brooke%20Tomasetti.png) Written by Brooke Tomasetti | Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts) Updated on October 1, 2024 Fact Checked Why Trust Carbon Collective? ### Table of Contents The matching principle is a crucial concept in accounting which states that the **revenues and any related expenses are realized and recognized in the same accounting period**. In other words, if there is a cause-and-effect relationship between revenue and expenses, they should be recorded at the same time. This would also mean that expenses are not recorded when they are paid and will be recognized when their corresponding revenues are recorded. Overall, expenses can be broken into two major categories – product and period costs. Product costs can be directly attributable to the goods or services delivered by the company and therefore will be recognized when a sale is recorded. Period costs do not necessarily have corresponding revenues. Administrative expenses, for instance, do not have a corresponding revenue stream and therefore are recorded in the current period. The matching principle also calls for expenses to be recognized in a “rational and systematic” manner. This is the reason why an asset’s depreciation is split over its useful life of it and recognized over many periods instead of being recorded as a lump sum in just one period. ## Benefits of the Matching Principle  The matching principle relates to the accrual accounting system and therefore presents a more reliable picture of the financial statements of a company. The matching principle helps to normalize and smooth out the [income statement](https://www.carboncollectiveinvesting.com/sustainable-investing/income-statement/). Otherwise, the company income statements would not make much sense if it were to recognize some of its revenues in one period and its related expenses in another. In this case, the company would be overstating the profitability in one period and understating the profitability in another. Thus, the matching principle will ensure that the income statement is not disconnected and that the investors have a better sense of the true profitability of the business. It is important for the investors to also study the [cash flow statement](https://www.carboncollectiveinvesting.com/sustainable-investing/statement-of-cash-flows/) along with the income statement to get a holistic picture of the company’s operations. ## Challenges of the Matching Principle  When there is a direct cause and effect relationship present between the revenues and expenses, this principle will be easy to implement. However, there are times when this relationship might not be that straightforward. For instance, a company decides to build a new office building that will improve the productivity of its employees. There is no direct way of attributing this cost to the increased revenues resulting from the increased productivity of the employees. Therefore, the company will depreciate the cost of the building over its useful life. Another example is a company that pays for online marketing. The increased incremental revenue due to the marketing effort cannot be allocated directly to the cost since both the timing and amount are unknown. In this case, the online marketing spend will be treated as an expense on the income statement for the period the ads are shown, instead of when the resulting revenues are received. ## Matching Principle Examples Some of the examples that explain the matching principle in further detail are given below: ### Example 1 Apple buys a piece of machinery for $100,000 in its Thailand factory. The useful life of this equipment is 10 years and it is expected that it will produce cell phones for this at least this period. Therefore, as per the matching principle, the rational and systematic approach would be to depreciate the machinery over its useful life. ### Example 2 Dawlance Trading Company sells kitchen appliances in a small town. It buys inventory worth $6,000 and sells it to a local restaurant for $9,000. At the end of the accounting period, Dawlance Trading Company should match the cost of inventory to the sales. ### Example 3 General Electric makes $60 million in revenue for an accounting period. It decides to announce and pay a dividend. Even though the bonus is not expected to be paid before the next accounting period, the company will realize this expense along with the corresponding revenues. ### Example 4 Company XYZ sales are made by sales representatives who take a 10% commission. The commissions are paid in the middle of each month, i.e. 15th day of each month. The company sales are $80,000 in March 2020 and the total commissions paid on 15th March amount to $8,000 out of which $3,000 are related to the previous month. - The commission payable balance of $3,000 carried forward from the previous month should be debited and cash credited. - The remaining commission paid out of $5,000 relates to the commissions pertaining to sales of this month till 15th March. - The commission that is payable for this month from the 15th to the 30th for which an [adjusting entry](https://www.carboncollectiveinvesting.com/sustainable-investing/adjusting-entries/) will be made is $3,000. Therefore, the total commission expense related to the month is $8,000. This is the addition of $5,000 already paid and the $3,000 that are still in payables and will be paid out on the 15th of next month. ## FAQs ### 1. What is the matching principle? The matching principle is a financial accounting concept that requires revenues and expenses to be matched in the same period. This principle helps to ensure that the financial statements are accurate and that they present a true and fair view of the company’s operations. ### 2. What is an example of the matching principle? One example of the matching principle is when a company records the cost of an asset over its useful life. This matches the expense of the asset with the revenues that it generates. ### 3. When is the matching principle used? The matching principle is used in financial accounting to ensure that revenues and expenses are correctly matched in the period they occur. This helps to provide an accurate view of the company’s financial position and performance. ### 4. Why is the matching principle important? The matching principle is important because it helps to ensure that the financial statements are accurate and present a true and fair view of the company’s operations. This is important for investors and other stakeholders who rely on these statements to make decisions about the company. ### 5. What are the benefits of the matching principle? Some of the benefits of the matching principle include: Ensuring that financial statements are accurate and present a true and fair view of the company’s operations, helping investors and other stakeholders make informed decisions about the company, and allowing companies to properly track their expenses and revenues. ### Related Topics - [Sustainable 401(k) Plan](https://www.carboncollective.co/401k) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing/) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Retirement Glossary](https://www.carboncollective.co/sustainable-investing/retirement-planning-glossary) - [Best Retirement Plans](https://www.carboncollective.co/sustainable-investing/the-10-best-retirement-plans) - [Wealth Manager Vs Financial Advisor](https://www.carboncollective.co/sustainable-investing/wealth-manager-vs.-financial-advisor) ![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg) ### Attend Our Next Webinar Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios. [Watch Now](https://www.carboncollective.co/sustainable-investing-webinar-green-retirement-month) ![Get Our Newsletter](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-demo.6ed28722.svg) ### Get Our Newsletter Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account. Join Newsletter ![close-typeform](data:image/gif;base64,R0lGODlhEQARAIAAAODn7P///yH5BAEHAAEALAAAAAARABEAAAIqBIKpab3v3EMyVHWtWZluf0za0XFNKDJfCq5i5JpomdUxqKLQVmInqyoAADs=) ![Talk To A Human](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-chat.49d48c5b.svg) ### Talk To A Human Joining a new investment service can be intimidating. We’re here for you. Click below to email us a question or book a quick call. [Ask a Question](https://ask.carboncollective.co/f70pooobq) Topics ## Sustainable Investing Topics View our list of some topics below. See More - Portfolios - [Performance](https://www.carboncollectiveinvesting.com/returns) - About - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - Learn - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - Contact - [Contact us](mailto:hello@carboncollective.co) - [Legal](https://www.carboncollective.co/legal) - [Privacy Policy](https://www.carboncollectiveinvesting.com/hubfs/2022-11%20Carbon%20Collective%20Privacy%20Policy.pdf) - [Back to top](https://www.carboncollectiveinvesting.com/sustainable-investing/matching-principle#top-of-page) DISCLAIMERS: Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective"), an SEC-registered investment adviser. A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/). The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered. © 2026 Carbon Collective Corporation. All rights reserved. × #### Fact Checked Carbon Collective partners with financial and climate experts to ensure the accuracy of our content. Our team of reviewers are established professionals with years of experience in areas of personal finance and climate. They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others. This team of experts helps Carbon Collective maintain the highest level of accuracy and professionalism possible. × #### Why Trust Carbon Collective Carbon Collective is the first online investment advisor 100% focused on solving climate change. We believe that sustainable investing is not just an important climate solution, but a smart way to invest. We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Much of our research comes from leading organizations in the climate space, such as Project Drawdown and the International Energy Agency (IEA). Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others. We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. } ```json { "@context" : "https://schema.org", "@type" : "Organization", "alternateName" : "Carbon Collective", "contactPoint" : { "@type" : "ContactPoint", "areaServed" : "US", "availableLanguage" : "en", "contactType" : "customer service", "telephone" : "(650) 868-2697" }, "logo" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png", "name" : "Carbon Collective Investing LLC", "sameAs" : [ "https://www.facebook.com/carboncollectiveinvesting/", "https://twitter.com/carbncollective", "https://www.instagram.com/carbon.collective/", "https://www.youtube.com/channel/UC769Y-F-L_B37kyQfdpvyXA", "https://www.linkedin.com/company/carbon-collective/", "https://www.crunchbase.com/organization/carbon-collective", "https://adviserinfo.sec.gov/firm/summary/310129", "https://www.wikidata.org/wiki/Q110243690" ], "url" : "https://www.carboncollective.co/" } ``` ```json { "@context" : "https://schema.org", "@type" : "FAQPage", "mainEntity" : [ { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "The matching principle is a financial accounting concept that requires revenues and expenses to be matched in the same period. This principle helps to ensure that the financial statements are accurate and that they present a true and fair view of the company’s operations." }, "name" : "What is the matching principle?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "One example of the matching principle is when a company records the cost of an asset over its useful life. This matches the expense of the asset with the revenues that it generates." }, "name" : "What is an example of the matching principle?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "The matching principle is used in financial accounting to ensure that revenues and expenses are correctly matched in the period they occur. This helps to provide an accurate view of the company’s financial position and performance." }, "name" : "When is the matching principle used?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "The matching principle is important because it helps to ensure that the financial statements are accurate and present a true and fair view of the company’s operations. This is important for investors and other stakeholders who rely on these statements to make decisions about the company." }, "name" : "Why is the matching principle important?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "Some of the benefits of the matching principle include: Ensuring that financial statements are accurate and present a true and fair view of the company’s operations, helping investors and other stakeholders make informed decisions about the company, and allowing companies to properly track their expenses and revenues." }, "name" : "What are the benefits of the matching principle?" } ] } ``` ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/Brooke%20Tomasetti.png", "url" : "https://www.carboncollectiveinvesting.com/sustainable-investing/author/brooke-tomasetti" }, "dateModified" : "2024-10-01", "datePublished" : "2021-03-24", "description" : "The matching principle states that the revenues and any related expenses are realized and recognized in the same accounting period.", "headline" : "The Matching Principle | Benefits, Challenges, Examples", "image" : "", "mainEntityOfPage" : { "@id" : "https://www.carboncollectiveinvesting.com/sustainable-investing/matching-principle", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png" }, "name" : "Carbon Collective" } } ```