Matching Principle

This refers to the principle of aligning the type of financing with the specific use of that financing. 

The main criteria is the distinction between short-term needs and long-term needs.

Put simply - a business that requires money in the short-term (pay supplier, buy inventory, small emergency expense like repairs) is best to use a financing instrument that is short-term. You won't go and get a mortgage to purchase more raw material inputs (inventory). Keep the less-than-12-months principle in your mind here too.

Likewise, a business that requires a larger and a longer-term piece of equipment, technology or premises is best to match this purchase with a longer-term source of funds. This is not going to be sold in the next 12 months - then match this purchase with a longer term financing option.

FYI - there is a different and more complicated accounting use of this concept. You'll see this if you search Youtube for further detail. 

Just stick to the basic concept above for the HSC course.