What is the matching principle?

The matching principle says that expenses are charged to the period in which they help to earn income, not the period in which they are paid. It is part of the accrual basis of accounting, which records income when earned and expenses when incurred, regardless of when cash moves. Matching gives the true cost of running the business for the period, which is why year-end adjustments such as accruals, prepayments and depreciation are needed.

What is the difference between an accrual and a prepayment?

An accrual (accrued expense) is an amount owing at the year end but not yet paid, so it is added to the expense and shown as a current liability. A prepayment is an amount paid in advance for next year, so it is taken off this year's expense and shown as a current asset. Both adjust the expense in the income statement so that only the cost belonging to this period is charged.

What are the two methods of depreciation?

The straight-line method charges the same amount each year, found by (cost minus residual value) divided by useful life. The reducing-balance method charges a fixed percentage on the falling net book value, so the charge is higher early on and smaller later. Both spread the cost of a non-current asset over the years it is used, in line with the matching principle, and both build up accumulated depreciation that is deducted from cost to give net book value.

How do you write off an irrecoverable debt?

When a customer will definitely not pay, you write off the debt by debiting irrecoverable debts (an expense) and crediting the customer (the trade receivable), removing the balance. Profit falls by the amount written off and trade receivables fall by the same amount. This recognises the loss in the period it becomes known, following the prudence concept.

What is an allowance for doubtful debts?

An allowance for doubtful debts is an estimate of the receivables that may not be paid, even though no specific debt has yet failed. It is created by debiting an expense and crediting the allowance account, and it is deducted from trade receivables in the statement of financial position to show the amount realistically expected. It follows the prudence concept by not overstating receivables or profit.

SingaporeAccounting

Adjustments and the matching principle: N(A)-Level Principles of Accounts (SEAB 7086), covering the matching principle and accrual basis, accruals and prepayments, depreciation of non-current assets, and irrecoverable debts and the allowance for doubtful debts

An N(A)-Level Principles of Accounts (SEAB 7086) overview of year-end adjustments and the matching principle: why we match expenses to the period they help to earn, how to adjust for accruals and prepayments, how to depreciate non-current assets by the straight-line and reducing-balance methods, and how to account for irrecoverable debts and an allowance for doubtful debts.

Generated by Claude Opus 4.87 min readSEAB-7086Updated 2026-06-13

Reviewed by: AI editorial process; not yet individually human-reviewed

Jump to a section

What this module trains
The matching principle and the accrual basis
Accruals and prepayments
Depreciation of non-current assets
Irrecoverable debts
Check your knowledge

What this module trains

A set of books that simply records cash in and cash out does not tell you the true profit. N(A)-Level Principles of Accounts (SEAB 7086) expects you to adjust the figures at the year end so that each period carries the cost it really used up. This module covers the matching principle behind those adjustments and the four big ones: accruals and prepayments, depreciation, and irrecoverable debts with the allowance for doubtful debts. Master these and the financial statements module becomes far easier.

This guide links the four dot points of the module, each with its own page and practice. The subject hub is at /sg-n-level/accounting and the syllabus index at /sg-n-level/accounting/syllabus.

The matching principle and the accrual basis

The matching principle dot point explains why we charge expenses to the period they help to earn income, and how the accrual basis differs from the cash basis. This is the idea that makes every other adjustment in the module necessary.

Accruals and prepayments

The accruals and prepayments dot point shows how to adjust an expense for amounts owing or paid in advance, and where each appears. An accrued expense is added to the charge and shown as a current liability; a prepayment is taken off the charge and shown as a current asset.

Depreciation of non-current assets

The depreciation of non-current assets dot point covers why depreciation is charged and the two methods. The straight-line charge is

\text{Annual depreciation} = \frac{\text{cost} - \text{residual value}}{\text{useful life}},

while the reducing-balance method applies a fixed percentage to the net book value each year. Accumulated depreciation is deducted from cost to give net book value.

Irrecoverable debts

The irrecoverable debts dot point shows how to write off a debt that will not be paid and how an allowance for doubtful debts works, both following the prudence concept.

Two adjustments at the year end

step 1: adjust rent for an accrual

Rent paid in the year is $\text{S\textdollar}5{,}000$ , and $\text{S\textdollar}500$ is still owing at the year end. The expense belongs to this year, so add it: rent expense $= \text{S\textdollar}5{,}000 + \text{S\textdollar}500 = \text{S\textdollar}5{,}500$ . The $\text{S\textdollar}500$ owing is an accrued expense, a current liability.

step 2: calculate straight-line depreciation

A machine costs $\text{S\textdollar}10{,}000$ , has a five-year life and a residual value of $\text{S\textdollar}1{,}000$ . Annual depreciation $= \dfrac{\text{S\textdollar}10{,}000 - \text{S\textdollar}1{,}000}{5} = \dfrac{\text{S\textdollar}9{,}000}{5} = \text{S\textdollar}1{,}800$ per year.

step 3: find net book value after two years

Accumulated depreciation after two years $= 2 \times \text{S\textdollar}1{,}800 = \text{S\textdollar}3{,}600$ . Net book value $= \text{S\textdollar}10{,}000 - \text{S\textdollar}3{,}600 = \text{S\textdollar}6{,}400$ .

step 4: write off an irrecoverable debt

A customer owing $\text{S\textdollar}400$ has gone out of business. Debit irrecoverable debts $\text{S\textdollar}400$ and credit the customer $\text{S\textdollar}400$ . Profit falls by $\text{S\textdollar}400$ and trade receivables fall by $\text{S\textdollar}400$ .

Year-end adjustments in N(A)-Level Principles of Accounts (SEAB 7086) make the accounts show the true cost of each period, following the matching principle and the accrual basis (income when earned, expenses when incurred). An accrual is added to the expense and shown as a current liability; a prepayment is deducted and shown as a current asset. Depreciation spreads the cost of a non-current asset: straight-line charges (cost minus residual value) divided by useful life each year, while reducing-balance applies a fixed percentage to the falling net book value, and accumulated depreciation is deducted from cost to give net book value. An irrecoverable debt is written off by debiting irrecoverable debts and crediting the customer, and an allowance for doubtful debts is deducted from receivables, both following the prudence concept.

Check your knowledge

A mix of recall and calculation questions across the module. Work each fully, then check against the solutions.

State the matching principle in one sentence. (2 marks)
Rent paid during the year is $\text{S\textdollar}4{,}000$ , with $\text{S\textdollar}300$ owing at the year end. Calculate the rent expense and state where the $\text{S\textdollar}300$ appears. (3 marks)
Insurance paid is $\text{S\textdollar}3{,}600$ , of which $\text{S\textdollar}600$ is for next year. Calculate this year's insurance expense and classify the $\text{S\textdollar}600$ . (3 marks)
A van costs $\text{S\textdollar}8{,}000$ and is depreciated at $25\%$ per year on the reducing-balance method. Calculate the depreciation for years 1 and 2. (4 marks)
Give the double entry to write off an irrecoverable debt of $\text{S\textdollar}250$ . (2 marks)
Explain why an allowance for doubtful debts follows the prudence concept. (2 marks)

Solutions

Q1: The matching principle charges expenses to the period in which they help to earn income, regardless of when they are paid.
Q2: Rent expense $= \text{S\textdollar}4{,}000 + \text{S\textdollar}300 = \text{S\textdollar}4{,}300$ . The $\text{S\textdollar}300$ owing is an accrued expense, shown as a current liability.
Q3: This year's insurance expense $= \text{S\textdollar}3{,}600 - \text{S\textdollar}600 = \text{S\textdollar}3{,}000$ . The $\text{S\textdollar}600$ paid in advance is a prepayment, a current asset.
Q4: Year 1: $25\% \times \text{S\textdollar}8{,}000 = \text{S\textdollar}2{,}000$ ; net book value $= \text{S\textdollar}8{,}000 - \text{S\textdollar}2{,}000 = \text{S\textdollar}6{,}000$ . Year 2: $25\% \times \text{S\textdollar}6{,}000 = \text{S\textdollar}1{,}500$ .
Q5: Debit irrecoverable debts $\text{S\textdollar}250$ (an expense); credit the customer / trade receivable $\text{S\textdollar}250$ (to remove the balance).
Q6: The prudence concept says not to overstate assets or profit. An allowance recognises that some receivables may not be paid, so it reduces receivables and profit to a realistic figure before any specific debt fails.

Sources & how we know this

Principles of Accounts (Syllabus 7086) — Singapore Examinations and Assessment Board (2026)