Ever notice how your income statement and balance sheet seem out of sync? That’s usually the matching principle at work—one of Generally Accepted Accounting Principles (GAAP)’s most important rules. It makes sure expenses land in the same period as the revenues they helped create. Skip this, and your profits could look way better (or worse) than they really are. This rule only matters if you use accrual accounting, not cash accounting, and it’s especially vital for fiscal periods longer than a month.
Quick Fix Summary
Pair expenses with the revenues they helped generate in the same accounting period. Log December commissions against November sales, record December rent in December, and accrue utility bills for December even if the invoice shows up in January.
What’s Happening
In accrual accounting, revenue is recognized when it’s earned, not when cash hits your bank account. Expenses follow the same logic: they’re tied to the revenue they support, not when you actually pay them. Picture a $10,000 sale in November with a $1,000 commission paid in December. Both the revenue and the expense belong in November’s books. Otherwise, your profit for that month looks artificially high or low. According to the Financial Accounting Standards Board (FASB), this principle is a cornerstone of GAAP, guaranteeing financial statements show the real story of your business.
How Do I Apply the Matching Principle?
Follow these steps in your accounting system to get it right:
- Pinpoint the revenue period
- Find the invoice or sales record showing when revenue was actually earned.
- Jot down the exact date (for example, November 15, 2025).
- Track down related expenses
- Look for costs tied to that revenue: commissions, shipping, warranties, you name it.
- Check both payment dates and invoice dates—don’t rely on just one.
- Make adjusting entries with accruals or deferrals
- In QuickBooks Desktop 2026: Head to Company Menu > Make General Journal Entries.
- Enter the revenue date and amount on the first line.
- Enter the expense date and amount on the second line, using the same date.
- If you use classes or locations, assign the same one to both entries.
- Finish up with adjusting journal entries at month-end
- In Xero 2026: Go to Accounting > Advanced > Journal.
- Enter the revenue date and amount first.
- Add the expense date and amount on the next line.
- Save and post before closing the period—don’t forget this step.
- Double-check with your financial statements
- Run the Profit & Loss by Class report in your software.
- Confirm revenue and related expenses show up in the same month.
- Peek at the balance sheet for any accrued liabilities or prepaid expenses.
What If It Still Doesn’t Work?
If your statements still feel mismatched, here’s what to do:
- Confirm your accounting method
You must be on accrual accounting. In QuickBooks: Go to Edit > Preferences > Accounting > Company Preferences. Pick Use Accrual Basis. Cash basis users won’t match revenues and expenses by design—it’s built into how that method works.
- Look for unapplied credits or deposits
In Xero: Go to Sales > A/R Aging Summary. Hunt down credits applied to the wrong period. Reassign them to the correct revenue month to fix the mismatch.
- Clean up intercompany transactions
If your company has multiple entities, make sure intercompany billings land in the same period. In NetSuite 2026: Go to Transactions > Financial > Make Journal Entry. Use the Intercompany account type to keep things tidy.
How Can I Keep This from Becoming a Problem?
Try these preventative measures:
- Use class or location tracking
Tag every revenue and expense transaction with the same class (for example, Project A, Region East). This makes matching a breeze during period-end reviews.
- Set up recurring adjusting entries
For predictable expenses like rent or insurance, create recurring journal entries with the right dates. In QuickBooks: Go to Lists > Recurring Transactions > New. Choose Journal Entry and set your start and end dates.
- Schedule monthly close checkpoints
On the 25th of every month, review your P&L and balance sheet. Scan for unmatched expenses in “Accrued Liabilities” or “Prepaid Expenses.” Flag anything that doesn’t line up for quick fixes.
- Train your team on accrual timing
Run a 30-minute refresher every quarter. Remind staff that commissions, bonuses, and vendor invoices must land in the revenue period they support. Walk through real examples from your chart of accounts to drive the point home.
Stick with the matching principle, and your financial statements will reflect what’s really happening in your business—not just cash moving in and out. That kind of accuracy builds trust with investors, lenders, and regulators. Plus, it keeps you from having to restate your numbers later, which can really hurt your reputation. At the end of the day, accuracy beats convenience every time.
