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Businesses that finance fixed assets with short-term financing run the risk of a cash flow problem. According to the matching principle all the revenues should be matched with the expenses in which they are received and all the expenses should be matched with the revenues in the same period in which they are incurred. The Matching Principle. Why is the matching principle important?View Solution: Why is the matching principle important "Looking for a Similar Assignment? Use Code "Newclient" Financing Fixed Assets With Short-Term Financing. Matching principle is quite an importance to users of the financial statements especially to understand the nature of expenses that records in the entity’s financial statements. Why is the matching principle important to financial reporting? The matching principle is a fundamental accounting rule for preparing an income statement. The concept states that expenses are to be recognized in the same accounting period as related revenues. In general, it takes longer for a company to recover its investment in long-term assets. Can cash accounting follow the matching principle? Through expense and revenue matching, financial statements can represent more accurate operating results. This is important in calculating the cost of owning the lawnmower, and it is important in calculating business income. Why the Matching Principle is Important. The matching principle states that expenses should show up on the income statement in the same accounting period as the related revenues. The maturity matching principle is an important consideration for business liquidity and profitability. In other words, the matching principle recognizes that revenues and expenses are related. Why the matching principle is important. Further, it results in a liability to appear on the balance sheet for the end of the accounting period. This principle ties the revenue recognition principle and the expense principle together, so it is important to understand all three. We started off noting that a $400 lawnmower that is used 100 times does not cost $400 for the first time and then deliver 99 free mowings. The matching principle is part of Generally Accepted Accounting Principles (GAAP) … The matching principle is associated with the accrual basis of accounting and adjusting entries. The concept of matching … Order now and Get 10% Discount! This principle helps avoid distortions in financial position and improve the quality of financial statements. Definition: The matching principle is an accounting principle that requires expenses to be reported in the same period as the revenues resulting from those expenses. Businesses must incur costs in … Why the Matching Principle is Important We started off noting that a $400 lawnmower that is used 100 times does not cost $400 for the first time and then deliver 99 free mowings. We promised there’d be more. Why the Matching Principle is Important for Small Businesses. One of the essential GAAP principles in accounting is the matching principle (or expense recognition). The matching principle directs a company to report an expense on its income statement in the period in which the related revenues are earned. The matching principle is defined as the fundamental concept of accrual basis accounting that offsets revenue against expenses on the basis of their cause-and-effect relationship. Associated with the accrual basis of accounting and adjusting entries recognizes that revenues and expenses are to recognized! Financial reporting show up on the income statement in the same accounting period (. Related revenues revenue matching, financial statements revenues are earned accrual basis of accounting and adjusting entries rule preparing. A fundamental accounting rule for preparing an income statement in the same accounting period short-term financing the... 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