Matching principle

Costs are recognised in the same period as the revenue they helped generate, rather than when they were paid.

A machine bought for ₹480 crore that produces revenue for eight years is charged at ₹60 crore a year, so each year carries its share of the cost of producing that year's sales.

The principle is what makes an income statement a measure of a period's performance rather than a record of its bank transactions, and it is why depreciation, provisions and deferred costs exist at all.

It also creates every judgement an analyst has to check.