Posted: September 25th, 2022

“the matching principle is important to follow to show that there is a credit for every debit and each month the funds balance.

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INSTRUCTIONS: Respond to AT LEAST 2 peers by providing an actual transaction example of the exception provided by your peer. Discuss at least one pro and one con for the Income Statement due to the exceptions for your transaction. Below is the discussion post of two of my peers. Please provide a response based on the above instructions.
1. “The matching principle is important to follow to show that there is a credit for every debit and each month the funds balance. There are exceptions that companies might not follow the matching principle. For example, “if a company with billions of dollars in revenue buys an office item worth $1000 whose productive life is over five years may choose not to apply the matching principle.” This smaller $1000 item that was purchased would have to be recorded monthly for 5 years, and it was not that large of an expense for the company. Therefore, it is easier for them no record it and not following the matching principle for that item.”
2. The matching principle states that companies are to report expenses, and related revenue, at the same time. “The principle works well when it’s easy to connect revenues and expenses via a direct cause and effect relationship. There are times, however, when that connection is much less clear, and estimates must be taken.” (CFI Team 2020) There can be exceptions, or challenges, when applying the matching principle, like if a big corporation were to invest over one million dollars for online marketing. The revenue can be hard to track, as it could potentially take months or even years for a customer to click on one of their ads to buy a product. In this example, the marketing expense would show on the income statement for the period of when the advertisements are shown, rather than when the revenue is accumulated.

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