Under the accrual basis of accounting, many of the account balances in the ledger at the end of the accounting period are reported in the financial statements without change. some accounts require updating, though. when preparing financial statements, the economic life of the business is divided into time periods. the matching principle states that: (a) a purchase made by a business is matched with the actual cost of the item. (b) the expenses incurred during a period are matched with the revenue that those expenses generated. (c) the transactions of a business are matched with the transactions of its owner, creditors and other businesses. (d) the accounting records and reports are matched with objective evidence.

The business cycle is the periodic but irregular up-and-down movement in economic activity, measured by fluctuations in real gross domestic product (gdp) and other macroeconomic variables. a business cycle is typically characterized by four phases—recession, recovery, growth, and decline—that repeat themselves over time. economists note, however, that complete business cycles vary in length. the duration of business cycles can be anywhere from about two to twelve years, with most cycles averaging six years in length. some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations. but the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.