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The Matching Principle
Under the matching principle, when revenue is recorded by a company it must also record (at the same time) any expenses related to that revenue. To do otherwise would result in overstated earnings as a result of under reported expenses in a particular period. The matching principle involves decisions by a company's accountants and auditors and management relating to the timing of expenses, and the recognition of revenue. While matching revenues and expenses is usually straightforward, there are instances in which doing so requires careful analysis. In other words, while usually straightforward this process occasionally involves a certain amount of subjectivity.
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