When is the matching rule applied

The bonus is paid in the following year. You should record the bonus expense within the year when the employee earned it. The pay period for hourly employees ends on March 28, but employees continue to earn wages through March 31, which are paid to them on April 4. The employer should record an expense in March for those wages earned from March 29 to March Recording items under the matching principle typically requires the use of an accrual entry.

An example of such an entry for a commission payment is:. In this entry, the commission expense is charged before the cash payment to the salesperson actually occurs, along with a liability in the same amount. In the following month, the company pays the commission, and records the following entry:. The cash balance declines as a result of paying the commission, which also eliminates the liability.

Because use of the matching principle can be labor-intensive, company controllers do not usually employ it for immaterial items. Depreciation refers to the decrease in value of an asset due to the passage of time and its inevitable wear and tear. Here are some examples of depreciation about the matching principle:. The computer is expected to last 10 years, meaning it will produce projects for the projected decade. The price of the computer should then be matched with the revenue it's creating for the company.

The cost of the bike will need to be matched with the revenue it's made you. In this case, let's say you use it to bike to work and it's saved you on gas. Commission refers to the amount of money paid to an employee for making a sale. For example, in addition to your hourly salary, you might get an eight percent commission on every sale you make.

Here are some examples of commission about the matching principle:. Their commission is then paid in December. An employee bonus is the amount of money an employee makes above their set salary. Oftentimes, employers will give you a bonus when you've exceeded expectations in the workplace. Here is how an employee bonus relates to the matching principle:. The bonus isn't paid out to them until In this case, they would record it on the income statement.

Wages refer to the monetary value you receive from your employer based on work done. Here are a couple of examples of the matching principle using wages:.

Let's say your pay period ends on Oct. Because you will continue to earn wages through the end of the month and will be paid Nov. If your company's pay period ends on Dec. This is because you continued to earn wages past the pay period—in this case, the final days at the end of December. If you're interested in working in finance, there are many job options available.

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For enterprise Overview Reduce churn Reduce international barriers Reduce operational costs Reduce time to get paid Reduce conversion risk.

For small business Overview Improve your cashflow Keep track of payments Reduce costs Reduce failed payments Increase conversions. Breadcrumb Resources Accountants. Table of contents. Understanding the matching principle The matching principle is part of the Generally Accepted Accounting Principles GAAP , based on the cause-and-effect relationship between spending and earning.

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