Difference Between Expense Recognition Principle And Matching Principle

Here we discuss about the difference between Expense Recognition Principle and Matching Principle and both of these principles are included in Generally Accepted Accounting Principles (GAAP).

Expense Recognition Principle states that expenses should be recorded when incurred whether the cash is paid or not.

Matching Principles states that all the expenses incurred for generating revenue must be matched with that particular revenue.

Because in Expense Recognition Principle we record the expenses when these are incurred whether the cash is paid or not i.e., it also involves a Credit Transaction alongwith a Cash Transaction, therefore, we focus only on the recording of expenses. For Example, Rent paid for Rs.5000 on Account are recognized as expense whether the cash is paid or not.

While in Matching Principles, we set off the revenues with the expenses incurred for earning that revenue. For Example, On 1^st March, 2017 Rent Paid For Rs.5000 on Account. This rent must be set off against the revenue of March of the business for the period of financial statements.

Expense Recognition is narrow term because we only concentrate on the recognition of the expenses while Matching Principle is wider as it covers both expense and revenue recognition Principles.

So, Both Revenue Recognition Principle and Matching Principle are vital for the correct accounting treatment of expenses, revenues and their setting off results.