What is Matching Principle?
The matching principle is an accounting concept that requires expenses to be recognised in the same period as the revenues they helped to generate. It is one of the cornerstones of accrual accounting and ensures that the income statement reflects the true profit of each period.
How It Works
- Identify revenue earned during the period.
- Identify all costs incurred to produce that revenue, regardless of when cash changed hands.
- Record both revenue and matching expenses in the same period.
- Defer or accrue items where cash and economic event fall in different periods.
Saudi Context
Saudi entities reporting under IFRS apply the matching principle to align with IAS 1 and IAS 18 (replaced by IFRS 15). It is also embedded in ZATCA’s accrual-based corporate income tax rules for non-Saudi shareholders.
Example
A Jeddah trading company sells goods worth SAR 200,000 in December but pays the related sales commission of SAR 10,000 in January. The commission is accrued in December so it matches the related sale.