Matching principle is linked with the accrual basis of accounting and refers to the booking of associated revenues and costs in the same accounting period so that accurate profit could be calculated.
A company has a fixed number of customers i.e. it receives 100 orders every year. It purchases items at $ 1,000 per unit and sells at $ 1,500 per unit. The company’s profit each year should be ($1500 – $1000) x 100 = $ 50,000. If the company is following accrual and matching principles then its profit would be $ 50,000 every year which is a fair presentation. On the other hand, if it doesn’t ensure that revenue and cost of all items sold are recorded in respective years then profit for each year will be different which would not be a fair presentation considering the sale volume and profit margin is the same across all years.