The matching principle aims to match up a number of items. Let's start with sales The first thing I need to match this up to is the period in which this happened The sales may have happened in 1999 2000 or 2001 Let's decide that it happened in the year 2000, so I've matched the sales to the period The next thing we can try to match up is the costs associated with those sales So for instance, let's say we bought the inventory in 1999 but then we sold it in 2000 Which income statement should those costs go in? Well if the sale happened in the year 2000 and the sale has gone in to the 2000 income statement, the costs also have to go into the same income statement So you take your sales, work out what period they went into and then work out the costs associated with those sales And put the costs into the same period