In June, $200 of revenue ($50 + $100 + $50) was earned and is matched with $120 ($30 + $60 +$30) of expenses that were incurred in the same month. The result appears in the Timeline #2 below. We have to “chop off” the pieces of these transactions that did not occur in June to be left with only the parts that belong in June. We want to include all the revenue and expenses that occurred in June, but none that occurred in May or July. Let’s say we want to produce an income statement for June, our window of time. As you can see, only half of the expenses from Jobs 1 and 3 was incurred in June. There was a total of $180 of expenses, but not all of it was incurred in June. Expense 6 also began in June some of it was incurred in June and some in July. Expense 5 began in June and all of this expense was incurred in June. Expense 4 began in May and was incurred partially in May and partially in June. As you can see, only half of the revenue from Jobs 1 and 3 was earned in June. There was a total of $300 in revenue from these three jobs, but not all of it is earned in June. Job 3 was started in June and was completed in July. Job 2 was started in June and completed in June. Job 1 was started in May and completed in June. The red bars represent revenue-three different jobs for $100 each. Any revenue or expenses before that month or after that month are not considered.īelow is Timeline #1, which includes three months. It compares how much came in in sales in a month vs. The key here is the “window of time,” such as a month. The matching principle looks at a window of time in terms of how much income came in and how much it cost to generate that income. You have probably heard that “It takes money to make money.” A business person contributes financial resources and hopefully uses them effectively to generate even more value.
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