Matching Concept
MATCHING CONCEPT |
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FURTHER DETAILS |
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ILLUSTRATION NO.1 |
On March 14, the company received inventory of $10,000. On April 13, the vendor is paid in full. On May 11, the company sold the inventory for $20,000 Question: When should the inventory become an expense? Answer: In the month of May as the inventory was sold. We have the income of $20,000 which we need to match it with the cost of $10,000 |
ILLUSTRATION NO.2 |
Company A bought a machinery for $36,000. It expects the machinery to be able to generate incomes for a period of three (3) years. The company uses the straight line method for depreciating the machinery. Question: What should be the annual or monthly depreciation to be expensed off to match the generation of income?. Answer: The company should expensed off $36,000/3 years =$12,000 per annum or $1,000 per month so as to match against the income. |
ILLUSTRATION NO.3 |
Company A bought a $12,000 yearly motor vehicle insurance from July 05 to June 06. The company year end is at 31 st December. Question: What should the company expense into the income statement from 1 st January to 31 st December 05 pertaining to this motor vehicle insurance? Answer: The company should expense off only half the year motor vehicle insurance relating to the period from July 05 to December 06 namely half of $12,000 = $6,000 into the income statement. This is because from January 2006 to June 2006 the motor vehicle insurance does not relate to the generating of income for that period. CLICK THIS TO SEE MORE ARTICLES ON ACCOUNTING CONCEPTS & PRINCIPLES |
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