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Matching Principle

Profit is a measure of performance of the enterprise. In order to measure the profit/loss earned during the accounting period. It requires, Matching of income earned during the accounting period with that of expenses incurred in that period.

Matching Concepts

Stage I:

To Opening stock

To Purchases

To Wages

To Gross Profit

By Sales

By closing stock

In the above, first Direct costs are matched with Sales revenue to ascertain Gross Profit

Stage 2:

To Administrative Expenses

To Deprecation

To Operation Profit

By Gross Profit

By Commission Received

In the second stage, Indirect costs are matched with gross profit and other income to ascertained Operating profit

To Preliminary Expenses

To Loss on sale of fixed assets

To Net profit

By operating profit

In the third Stage, Operating profit is matched with capital expenditure to ascertain the net profit.

(The above statement is an example of some items in trading and profit /loss account.)

Thus in Matching Concepts, to ascertain the profit /loss during the accounting period includes all incomes whether received or not and all expenditure whether paid or not during the accounting period.

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