Revenue Recognition and Matching Concept

Revenue recognition concept – The concept of revenue recognition requires that the revenue for a business transaction should be included in the accounting records only when it is realized. Thus, credit sales are treated as revenue on the day sales are made and not when money is received from the buyer. As for the income such as rent, commission, interest, etc. these are recognized on a time basis. For example, commission for the month of March 2008, will be taken into the profit and loss account of the financial year ending March 2008 even if it is received in April 2008.

Matching concept – According to the matching concept expenses incurred in an accounting period should be matched with revenues during that period. After taking into account all revenue and expense for a particular period one can arrive at the profit or loss of that particular period.

In other words matching concept, implies that all revenues earned during an accounting year, whether received during that year, or not and all costs incurred, whether paid during the year, or not should be taken into account while ascertaining profit or loss for that year.

Hence from the above one can see that first revenue recognition is necessary and after that one can move onto the matching concept.

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