Accounting Concepts - 8. Matching Concept or Periodical Matching Concept:
Every businessman invests money in the business with the main objective of earning profit. So naturally, he would like to know the amount of profit earned from his business. Further, information about the profit made by a business is necessary for income-tax purposes. Again, in the case of a joint stock company, information about profit is necessary for dividend purposes. Above all, information about profit is useful to the management for planning for the future. Thus, for one reason or the other, it is necessary for every business concern to know the profit earned by the business.
Again, a business concern is not content with mere information about the net profit or net loss of the business. It wants the details of all the revenues (which increase the profit) and all expenses (which reduce the profit). Detailed information about all the items of revenue and all the items of expenses and losses is necessary, because right business decisions in the right direction can be taken only when detailed information about all items of revenue and expenses are available.
To know the net profit or net loss and the details of all revenues and expenses, every business prepares and presents a statement or an account known as the income statement or the profit and loss account.
Profit is the result of two factors or forces, viz., (i) revenues and (ii) expenses and losses. The revenues increase the profit, and the expenses and losses decrease the profit. So, for the measurement or determination of the profit or loss, the two forces are matched (i.e., compared), and the resultant balance is taken as the net profit or the net loss. If the revenues exceed the expenses and losses, the resultant balance is taken as the net profit. On the other hand, if the expenses and losses exceed the revenues, the resultant balance is taken as the net loss. Thus, the net profit or loss of a business is determined by matching the expenses and losses with the revenues.
Every businessman invests money in the business with the main objective of earning profit. So naturally, he would like to know the amount of profit earned from his business. Further, information about the profit made by a business is necessary for income-tax purposes. Again, in the case of a joint stock company, information about profit is necessary for dividend purposes. Above all, information about profit is useful to the management for planning for the future. Thus, for one reason or the other, it is necessary for every business concern to know the profit earned by the business.
Again, a business concern is not content with mere information about the net profit or net loss of the business. It wants the details of all the revenues (which increase the profit) and all expenses (which reduce the profit). Detailed information about all the items of revenue and all the items of expenses and losses is necessary, because right business decisions in the right direction can be taken only when detailed information about all items of revenue and expenses are available.
To know the net profit or net loss and the details of all revenues and expenses, every business prepares and presents a statement or an account known as the income statement or the profit and loss account.
Profit is the result of two factors or forces, viz., (i) revenues and (ii) expenses and losses. The revenues increase the profit, and the expenses and losses decrease the profit. So, for the measurement or determination of the profit or loss, the two forces are matched (i.e., compared), and the resultant balance is taken as the net profit or the net loss. If the revenues exceed the expenses and losses, the resultant balance is taken as the net profit. On the other hand, if the expenses and losses exceed the revenues, the resultant balance is taken as the net loss. Thus, the net profit or loss of a business is determined by matching the expenses and losses with the revenues.
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