Examples of Matching Principle
1. Sales and Cost of Goods Sold (COGS): Suppose a company sells $10,000 worth of products in January. However, the products sold also incurred $6,000 in manufacturing costs (materials, labor, etc.). According to the matching principle, the $6,000 in manufacturing costs (COGS) should be recognized as expenses in January, the same period when the $10,000 revenue is recognized from the sale. This ensures that the expenses associated with generating revenue are matched with the revenue they helped to generate.
2. Salaries and Revenue: Consider a service-based company that provides consulting services. If the company generates $20,000 in consulting revenue in February, the salaries of the consultants who provided the services should also be recognized as expenses in February. By matching the salaries expense with the consulting revenue, the company accurately reflects the cost of generating the revenue.
3. Utilities and Revenue: Imagine a retail store that generates $50,000 in sales revenue in March. The store also incurs $2,000 in utility expenses (electricity, water, etc.) during March to keep the store running. According to the matching principle, the $2,000 utility expenses should be recognized as expenses in March, the same period when the $50,000 revenue is recognized. This ensures that the costs incurred in operating the store during March are matched with the revenue generated in March.