accounting principles test

GAAP Requirement

Requires the use of the accrual method because it gives a more accurate picture of performance.

Revenue Recognition Principle

Revenue must be recorded in the period it is earned (accrual) or when cash is received (cash basis).

Cost Principle

All assets and purchases must be recorded at their original acquisition cost.

Matching Principle

Expenses must be recorded in the same period as the revenues they help generate.

Full Disclosure Principle

All relevant information must be fully disclosed in financial statements.

Objectivity Principle

Financial information must be based on verified, unbiased evidence.

Consistency Assumption

The same accounting methods must be used across periods for comparability.

Going Concern Assumption

Assumes the business will continue operating into the foreseeable future.

Time Period Assumption

Financial information must be reported in consistent time intervals (month, quarter, year).

Economic Entity Assumption

Business financial records must be kept separate from the personal finances of owners.