Matching Principle
As we continue with our clarification of finance bookkeeping, it will be useful to review the coordinating guideline of bookkeeping. This standard will control us to better see how finance and incidental advantages are accounted for on money related articulations. (We're accepting that an organization takes after the accumulation technique for bookkeeping.)
The coordinating standard requires an organization to match costs to the bookkeeping time frame in which the related incomes are accounted for. In the event that an immediate association amongst incomes and a cost does not exist, then the cost ought to show up on the pay explanation for the bookkeeping time frame in which it was brought about. Remember that costs are frequently acquired (or happen) in an alternate bookkeeping period than when they are paid.
How about we utilize three finance case to show this point:
An organization utilizes an understudy to work an aggregate of five days—from December 26 through December 30, 2015. On December 30 the understudy presents her time card. The organization issues her finance keep an eye on the following planned payday, January 5, 2016.
Despite the fact that the check is dated January 5, 2016, the coordinating guideline requires that the organization report the cost and the risk in December 2015 when the work was performed (and the organization brought about the obligation). Since the understudy was utilized throughout the previous five days of December, the organization would not have any compensation or incidental advantages cost for her amid January. The paycheck issued on January 5 only diminishes the organization's liabilities and money.
We should accept that an organization gives its business chief a yearly reward of 1% of offers, to be paid on January 15, 2016. The reward sum is computed by duplicating the deals from January 1 through December 31, 2015 times 1%.
The coordinating guideline requires that the organization report 1% of offers as a Bonus Expense on its pay explanation (and an obligation for the aggregate sum owed must be accounted for on its monetary record) in each bookkeeping period in which deals happened in 2015. On the off chance that the organization damages the coordinating standard by overlooking the reward cost during the time 2015 (when deals really happened) and reports the whole reward sum as a cost for only one day (January 15, 2016), each salary explanation germane to 2015 will report an excessive amount of net wage and the wage articulation that incorporates January 15, 2016 will report too minimal net pay. The coordinating guideline requires that the reward cost correlated to the 2015 deals be coordinated with the 2015 deals on the 2015 pay explanation.
On the off chance that the sections are recorded appropriately, the asset report dated December 31, 2015 will report a present risk for the aggregate reward sum owed to the business supervisor. On January 15, 2016 (when the organization pays the reward) the organization won't have a cost; rather, the installment will lessen the organization's money and diminish the present obligation that was built up when the reward was recorded as a cost in 2015.
An organization has an excursion plan that will give two weeks of get-away in the year 2016 if the worker worked the whole year of 2015. In the year 2015 (when the worker is working) the organization reports the get-away cost on its 2015 wage proclamation. The organization's December 31, 2015 accounting report will report a present risk for the two weeks of excursion pay that was earned by every worker except not yet taken. In 2016 (when representatives take the excursions that were earned and expensed in 2015), the organization will diminish its money and its get-away risk.
As you find out about representing finance and incidental advantages, remember the coordinating rule. As the above cases appear, the date on which an organization pays wages or incidental advantages is not as a matter of course the date on which the organization reports the cost on its monetary articulations.
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