Introduction
Accounting Principles and Generally Accepted accounting Principles (GAAP)
Economic Entity Assumption
Individual owner and the business are separate and should not be treated one, however, legally the individual owner and the business is same in the case of the sole-proprietorship.
Monetary Unit Assumption
Only those transactions will be reported that can be measured in the unit of currency thus promoting the comparability among the financial statements.
Time Period Assumption
Financial information is presented keeping in consideration the periodicity. Every financial statement needs to report if it covers a period of time or is reported at a specific point of time is the specific theme of the Time Period Principle.
Cost Principle
The cost principle refers to the stating of the assets at the amount that was originally spent in relation to their acquisition. The principle requires not to state the inflation adjusted or revalued amount of the assets.
Full Disclosure Principle
It is important that the business disclose the principal and important financial information thereby making the decision-making process for the investors smooth, reliable and profitable in the real-time.
Going Concern Principle
This principle gist is that the subject organization has its operations going in the similar fashion in the future and has no plan to liquidate or there is no indication of the discontinuation of the operations in the foreseeable future.
Matching Principles
It is pretty good that the all the incomes and the expenses that relate to a specific period are presented in the potential income statement of the period thereby presenting the profit or loss figure that is true in real-time.
Revenue Recognition Principle
It states that revenue is to be recognized if the right to receive money from the customers has been established that is the goods are finally supplied or the services performed. It has nothing to do with the original money receipt.
Materiality
It’s about how important is a specific financial information. This concept has its roots in both the quantity and quality. Information is material if it is more likely that its manipulation will result in the potential decision making of the stakeholder.
Conservatism
Conservatism is all about being prudent in the accounting of the financial information in relation to the gains and the losses. It is wise to anticipate the losses of the business but the same approach is not advised for the gains. This way the eventual financial information is unbiased and objective.
The basic rules that are primarily related to how accounting functions in relation to financial operations, commonly referred to as basic principles. These are the basic rules that base the formulation and promulgation of comprehensive accounting standards that encompass the range of financial operations of the organizations. Accounting bodies across the world such as FASB and IASB used accounting principles in the establishment of the standards that set out detailed requirements in relation to how the specific operations are to be accounted for.
Accounting Principles and generally accepted accounting principles (GAAP) are not equivalent terms. GAAP is name given to the rules produced by the Financial accounting standards board to supervise and regulate the financial operations of the companies in the United States and the accounting principles are an integral part of the generally accepted accounting principles (GAAP). There are three integral components of the GAAP, firstly, there are accounting principles followed by the formal standards in relation to the accounting requirements for different accounting transactions and events with last component being the general practice in relation to the accounting of the industry. In the nutshell, accounting principles help in the formulation and promulgation of the standards and the GAAP shed limelight in relation to the preparation of the formal financial reports of the organization that are commonly referred to as the Financial statements.
Basic Accounting Principles and Guidelines
GAAP is the framework that guides the due process that needs to be followed in relation to the preparation of the financial statements. As discussed above, GAAP is based on a few accounting principles enumerated below and each is followed by the little brief about their core concept:
Individual owner and the business are separate and should not be treated one, however, legally the individual owner and the business is same in the case of the sole-proprietorship.
Monetary Unit Assumption
Only those transactions will be reported that can be measured in the unit of currency thus promoting the comparability among the financial statements.
Time Period Assumption
Financial information is presented keeping in consideration the periodicity. Every financial statement needs to report if it covers a period of time or is reported at a specific point of time is the specific theme of the Time Period Principle.
Cost Principle
The cost principle refers to the stating of the assets at the amount that was originally spent in relation to their acquisition. The principle requires not to state the inflation adjusted or revalued amount of the assets.
Full Disclosure Principle
It is important that the business disclose the principal and important financial information thereby making the decision-making process for the investors smooth, reliable and profitable in the real-time.
Going Concern Principle
This principle gist is that the subject organization has its operations going in the similar fashion in the future and has no plan to liquidate or there is no indication of the discontinuation of the operations in the foreseeable future.
Matching Principles
It is pretty good that the all the incomes and the expenses that relate to a specific period are presented in the potential income statement of the period thereby presenting the profit or loss figure that is true in real-time.
Revenue Recognition Principle
It states that revenue is to be recognized if the right to receive money from the customers has been established that is the goods are finally supplied or the services performed. It has nothing to do with the original money receipt.
Materiality
It’s about how important is a specific financial information. This concept has its roots in both the quantity and quality. Information is material if it is more likely that its manipulation will result in the potential decision making of the stakeholder.
Conservatism
Conservatism is all about being prudent in the accounting of the financial information in relation to the gains and the losses. It is wise to anticipate the losses of the business but the same approach is not advised for the gains. This way the eventual financial information is unbiased and objective.
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