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Download Free Copy What Is The Matching Principle? Category. Accounts Payable

• Written by Keith Murphy
• 11 min read

Tags 3-Way MatchingInvoice Processing Last edited August 20, 2020 Download PDF

Accurate financials are a cornerstone of both accrual accounting and a successful business management strategy. 

Without complete and transparent financial statements, everything from cash flow management to taxes to financial forecasts will be compromised, putting your company at risk.

Following the Generally Accepted Accounting Principles (GAAP) in general, and using the matching principle in particular, can help both large and small businesses who use the accrual method of accounting to manage their finances effectively.

A Matter of Accuracy: What is the Matching Principle?

Cause and effect is a basic concept of the universe. Companies who want to make money (revenue) need to spend money (expenses) to do so. 

The matching principle connects these two financial dots by drawing a line between expenses/costs and the benefits they provide to create clear, comprehensive, and permanent financial records.

In financial accounting—specifically, the conform to GAAP, a set of accounting principles that ensures companies using accrual accounting follow guidelines for accuracy, consistency, permanency, clarity, and prudence, among others. 

Following these principles doesn’t just improve performance; it’s a legal requirement in the United States, and investors rely on companies using the matching principle to produce financial records with clear, consistent connections between expenses and revenue.

The matching principle is a corollary of the revenue recognition principle, which requires revenue to be recognized and recorded when it is earned, rather than when it is received.

In procurement—specifically, in the procure-to-pay (P2P) process connecting procurement with its partner, accounts payable (AP)—the matching principle is used to connect purchase orders (POs) with their corresponding invoices and other related documentation. 

The two, three, or even four-way matching, depending on their internal processes and the amount of detail required.

In both accounting and procurement, effective use of the matching principle helps organizations who use accrual basis accounting conform to GAAP and ensure their procurement and accounting systems are working properly. 

It also ensures their financial records are accurate and complete, so the company doesn’t misstate its financial position or make spending decisions based on incomplete or inaccurate data that will leave it struggling to manage working capital or meet its obligations.

Companies who want to make money (revenue) need to spend money (expenses) to do so. The matching principle connects these two financial dots by drawing a line between expenses/costs and the benefits they provide to create clear, comprehensive, and permanent financial records.

Examples of the Matching Principle

Understanding how the matching principle works is much easier with a few concrete examples. Let’s take a closer look at some from both accounting and procurement.

In accounting,