Scenario Analysis No. 4 – Matching Concept

One of the way to know whether a business can survive is Profit achieved, calculated by the difference between Revenue and Expense in the P&L Account.

As noted during the #1SEM1Sistem seminar, expense that relate to the following month which have been paid in the current month shall be excluded from the current month calculation of profit.

Using accounting equation as basis, the transactions are as follows:

Asset + Expense = Liability + Equity +Revenue

Prepayment Account = Bank

(Debit: increase in asset = Credit: decrease in asset) CURRENT MONTH

Expense Account = Prepayment Account

(Debit: increase in expense = Credit: decrease in asset) NEXT MONTH

The expense shall be recognised next month. This focus on specific period of time when the revenue and expense are recognised is termed as matching concept.

Revenue is “matched” with Expense for the specific period of time to calculate Profit.**

sa-no-4

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s