The matching principle is one of the Generally Accepted Accounting Principles (GAAP). GAAP is basically the rule book that accountants follow when preparing financial statements. Under the accrual basis of accounting, revenues are recorded in the same period as when the expenses are incurred. For example, if a corporation is providing consulting services, we have determined from the revenue recognition principle that revenue is recorded when the work is performed.

Under the matching principle, the salary expense for the related consulting services would be recorded in the same period. If the salary was not paid until after the current period, then there would be an accrual set up for wages payable as a liability. Alternatively, under the cash basis of accounting, revenues are recorded when cash is received and when expenses are paid. For example, using the previous scenario, revenue would only be recorded when the cash is received. There could be a situation where salary is paid in the current period, but the cash for revenue is not collected until the next period.

Another example of the matching principle is when a corporation buys equipment for $50,000 that has a projected life of 5 years. It could charge the cost of the equipment to depreciation expense at the rate of $10,000 per year for 5 years. Since the equipment will be used to produce income over 5 years, the depreciation expense is matched properly. When revenue is matched to expenses properly, it is useful to managers, investors and bankers to make important decisions. GAAP allows the readers of the financial statements to review meaningful and comparable information.