One of the main principles of accounting is known as the matching principle. Matching is the practice of matching your revenue and expenses together.
Many companies I’ve worked with don’t put in a lot of effort in this area. Without matching your revenue and expenses together, you’ll find that it can be fairly difficult to get an accurate read on your company’s performance.
When I’ve asked these companies why they aren’t focusing on matching, they usually tell me it’s because it takes too much effort, it’s too difficult to track everything, or that they believe that everything will eventually flow through.
While most companies are doing the best they can when it comes to matching, every owner or business leader should make a concerted effort to educate themselves on the topic and begin to implement this best practice at their business.
It really isn’t all that complicated, and it won’t take much time at all to set things up so that you can begin to match your revenue and expenses together. Once matching is in place, it will become second nature to the accounting department after a few months of practice, just like anything else in business.
Another common excuse I hear is that it’s too difficult to track down all the numbers. If you’ve never tracked and tried to match revenue and expenses together, it can be a pretty daunting task. If this is the case, the best advice I can give is just to start the process. Start with a certain job type – I’d recommend installs if your company does any installation. Document the process throughout, and once you have those job types or a single department down, move on to the rest of the company.
The last reason I hear most often from owners and leaders is that “everything will flow through eventually.” This is true, but if it doesn’t flow through in the right time frame, it could skew your numbers. If large vendor statements are missing, large payrolls are reflected in the wrong period, or any other large expense hits the wrong month, it won’t necessarily work itself out in a quarter, which is usually the time frame where most companies review their financial statements.
Without concentrating on matching, a company can fail to make sound business decisions through the use of their financial statements, and ultimately, that’s what financial statements are used for in the first place.
A few quick steps to work towards matching in your company would be to:
1. Review all large jobs at the end of the month and ensure everything has been received and entered;
2. Accrue your payroll to reflect the payroll in the correct period;
3. Request statements from all of your vendors, especially suppliers, at the end of the month. Review these statements and reconcile to your system to make sure everything is entered; and
4. Make sure all payments received prior to work being done have not been recognized, and instead are being held on your balance sheet.
There’s more of course, but that’s a good starting point for you to make sure your company is doing everything in its power to match revenue and expenses in the same period.
Publication date: 10/29/2018