All organizations must abide by various accounting principles (for example, Generally Accepted Accounting Principles [GAAP]), and some must report to various state and federal government agencies. There are different ways that an organization can recognize revenues and expenses. Accrual accounting implies that revenues and expenses are recognized and recorded in the period when they are incurred rather than in the period when cash is received.

The matching principle guides a business to recognize an expense on its income statement during the same time period as the corresponding revenue. Thus, all expenses related to generating a certain revenue will need to be recognized when the revenue is recognized, according to the revenue recognition/realization principle. The net result from matching revenues (inflows) and expenses (outflows) during a given period is the net income, which measures the performance of the company during that period.

Why do you think organizations use the matching principle? What are the advantages of this approach? What are some possible disadvantages?