![]() ![]() You can compare the cash accounting system to the old shoe box. Cash accounting realizes revenues and expenses when the money changes hands. This is technically the definition of accrual accounting which is the polar opposite of cash accounting. That’s right! We want to consistently match the revenues with costs at the time the revenue is earned, regardless of when the money comes or goes. Here comes the confusing part, match all revenues with costs “regardless of when the money exchanges hands.” The matching principle states, in order to have meaningful financial information we must match all revenues with their costs at the time the revenue was earned. What does the matching principle mean? Why is it so important to grasp if you want to be a leader who has or wants financial leadership skills? The matching principle, because of its name and the definition, is a bit confusing at first glance. That is the matching principle getting abused!Here is what it’s all about and how to use it properly. This was probably because someone else lost the invoice or failed to put it through to accounts payable. You most likely have endured the wrath of someone when the financial statement came out in your hotel and you had expenses that month from a few months back. So read on and get your schtick together. These principles are universal and without them, you’re akin to a plumber who doesn’t understand why water flows the way it does. Being a financial leader means you understand and employ business principles. ![]() Some of you are probably thinking this is for the bean counters and the propeller heads to chew on. Grasp this and you are well on your way to understanding the other principles and most importantly putting these principles to work in your day-to-day hotel leadership role. The profit and loss statement cannot exist and be in any way accurate without using the matching principle every step of the way. I tell my Introductory Hospitality Financial Leadership Workshop participants that the concept behind the matching principle is “the most important concept today.” Why? When it comes to producing financial information, it’s the cornerstone of understanding why we do almost everything the way we do it in the business world. ![]()
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