ACCT 3366 framework

CH 1

Expense recognition principle

Expenses should be recorded in the same accounting period as the revenues they help to generate or revenue is recognized.

Periodicity assumption

A company's financial activities can be divided into artificial time periods within a 12 month period. They can be quarterly or annually, etc. or relates to the qualitatives characteristic of timeliness.

Historical cost principle

Assets should be recorded at their original purchase price, as they are the measurement of many assets and liabilities.

Materiality

It involves the relevance of an item and how it will affect decisions. If an item is not relevant enough, one does not need to follow GAAP.

Revenue recognition principle

Revenue should be recognized when a product or service is delivered, not when money is received. Criteria usually satisfied at point of sale.

Going concern assumption

The entity will continue indefinitely.

Monetary unit assumption

A common denominator like the dollar in the U.S. and cannot be adjusted to inflation or anything like that.

Economic entity assumption

An entity is separated from its owners and other entities, and all economic events can be identified with a particular entity.

Full disclosure principle

All information that could affect a decision should be reported.

Conservatism

Only when one thinks that there will be losses in the future should one report it. If one thinks there will be gains, do not report.

Cost effectiveness

The benefits of providing accounting information should exceed the cost of doing so.