What matching means in practice
Revenue and the costs of earning it often fall in different periods. Stock is bought in one month and sold in another. A piece of equipment is paid for once but helps earn revenue for years. Matching asks you to line the cost up with the period in which the related revenue is reported, so each period’s profit reflects what it actually took to earn that period’s sales.
It works alongside accrual accounting, which places income when it is earned and expenses when they are incurred. The CRA describes this for business income: report income in the fiscal period you earn it and deduct allowable expenses in the period you incur them, whether or not paid. Matching adds the further question of which period an expense helps earn.
An illustrative example
A shop buys 100 items for $2,000 in November and sells 60 of them by December 31. Matching treats the cost of the 60 sold, $1,200, as an expense for the year, and keeps the remaining $800 as inventory on the balance sheet. Expensing the full $2,000 would understate profit this year and overstate it next year. The numbers are illustrative.
The CRA’s guide for self-employed business income follows the same logic: it asks you to claim the cost of goods you buy or make for sale in the fiscal period in which you sell them, using opening and closing inventory. See cost of goods sold for the calculation.
Where matching meets tax rules
Matching is an accounting concept, and tax law has its own rules. The CRA separates current expenses, which are generally deductible when incurred, from capital expenses, where you claim capital cost allowance instead of the full cost. Tax results can therefore differ from accounting profit even when the books follow matching correctly.
Some costs, such as rent, wages and utilities, have no direct link to a particular sale. They are usually recorded in the period they relate to rather than matched to specific revenue. Prepaid costs and unpaid ones both need adjusting at period end.
What to discuss with your accountant
Mistakes usually come from timing: deducting a large purchase at once that benefits several periods, missing wages or interest earned but unpaid, or recording a deposit as revenue before the work is done. Ask which of your costs should be spread, which should be accrued and which are capital for tax purposes.
Bring supplier invoices dated around period end, an inventory count, equipment purchase records and contracts that cover more than one period.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- Accounting for your earningsCanada Revenue Agency
- Business expensesCanada Revenue Agency
- Self-employed Business, Professional, Commission, Farming, and Fishing Income (T4002): Chapter 2 – IncomeCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.