Theory Base of Accounting — Account STD 11 Commerce — Question

Matching Concept: An important objective of business is to determine profit periodically. It is necessary to match revenues of the period with the 'expenses' of that period to determine correct profit (or loss) for the accounting period. Profit earned by the business during a period can be correctly measured only when the revenue earned during the perioc is matched with the expenditure incurred to earn that revenue. It is not relevant when the payment was made or received. Therefore, as per this concept, adjustments are made for all outstanding expenses and prepaid expenses.