Name: Aleah Jasmin Paderez Section: BSA1-2

Mary Margarette Ceniza

Business: Coffee Shop

Matching Principle (Association of Cause and Effect)

Based on our research, Matching is an accounting principle that requires

businesses to record their expenses. They are often linked against revenue at the same

time as the revenues, using this principle. Costs are recognized as assets first and are

only charged as expenses after recognizing related revenue. To make it short, revenues

and expenses are paired on the income statement.

HOW WILL WE APPLY THIS CONCEPT TO OUR BUSINESS:

We all know that every business has its financial statement. As business owners,

we will apply this principle to calculate and prepare statements of our company. The

prepared financial statements will be presented to and used by our external users like

our suppliers. They will base their decisions on the statements we present to them.

FOR EXAMPLE:

In 2019, our employee obtains a bonus of P15,000 based on their work

performance. They haven't received their bonus until 2020. The P15,000 expense

should be recorded on the income statement in the year our employee earned it,
according to the matching principle. We, the business owners, record it on the 2019

income statement in this situation.

HOW WILL IT HELP OUR BUSINESS TO GROW:

One of the matching principles’ purpose is to help businesses prevent overstating

their profits. If inventories or profits overstate, it will cause problems to the company

because it will give us and the potential buyers a negative appearance on how well our

business is doing. In the worst scenario, us - the business owners, may be accused of

fraud and tax evasion.

Another purpose of this principle is to help in terms of the depreciation of the

assets of our business. When an asset that will be beneficial in the coming periods is

acquired, the cost is appropriately distributed or spread out over the time that the said

asset is useful. For example, if we purchase an espresso machine for our coffee shop,

its cost will be distributed over its useful life to balance the cost over a certain period.

To summarize, the matching principle gives a positive outcome to our business

because it ensures that the financial statements, such as the income statement and

balance sheet, are accurate and trustworthy. Aside from accuracy, it also helps

guarantee that the mentioned statements are consistent. All in all, with the use of this

principle, we will be able to clearly see the real financial condition of the business.