Accounting – 7.1 Accounting principles | e-Consult

In the context of depreciation, matching is applied by spreading the cost of a long-term asset (like machinery or a vehicle) over its useful life. Depreciation expense is recognized in each period the asset is used to generate revenue.

It's important to match depreciation expense with the revenue generated by the asset because the asset is used to help generate that revenue. This provides a more realistic representation of profitability. If the entire cost of the asset was expensed in the year it was purchased, it would significantly reduce reported profits in that year, even though the asset is contributing to revenue generation over multiple years. Matching ensures that the expense is recognized when the benefit is received.