Which accounting principle ensures that expenses are matched to revenue?

The matching principle is a key concept in accounting that ensures expenses incurred in a period are recognized in the same period as the revenues they help to generate. This principle is foundational in accrual accounting and serves to provide a more accurate picture of a company's financial performance during a specific time frame.

For example, if a business incurs costs to produce goods that are sold in a certain month, the matching principle requires that those costs be recorded as expenses in the same month when the related revenue from the sale is recognized. This alignment helps in accurately assessing profitability and financial health.

While the accrual basis of accounting relates to recognizing revenues and expenses when they are earned or incurred rather than when money changes hands, the matching principle is specifically focused on the correlation between expenses and the revenues they generate. The concepts of conservatism and consistency play important roles in accounting, but they do not specifically govern the relationship between expenses and revenues in the way that the matching principle does.