Answer:
Matching Principle
Explanation:
Matching Principle states that expenses and revenue should be recorded as per 'accrual basis' of accounting for each accounting period. Accrual basis of accounting implies that transactions should be recorded, when they are entered into, irrespective of the cash settlement.
Matching principle requires expenses & revenue to be recorded on accrual basis in each accounting period (financial year). The matching of expenses, revenue assist business in ascertaining their net income for the corresponding accounting period.
Depreciation is the fall in value of asset due to passage of time, usage wear & tear, expected obsolescence. It facilitates in spreading the cost of fixed asset over its expected life. So, this 'cost' of fall in value of asset is important to be recorded as expense in business, to evaluate its correct profitability as per matching principle, for an accounting period.
