GAAPs

Generally Accepted Accounting Principles

guide accountants to record transactions & remain accurate, honest, & fair thru AC process

Non-Authoritative

not binding, CMPs follow rules voluntarily;

comes from widely accepted industry practices

Authoritative

binding guidelines companies must follow;

source: Financial Accounting Standards Board

Assumptions

Economic Entity, Monetary Unit, Time Period

Principles

Cost, Full Disclosure, Going Concern, Matching, Revenue Recognition, Materiality, Conservatism

Economic Entity Assumption

keeping biz transactions separate from personal transactions

Monetary Unit Assumption

any econ event occurring must be measured in a currency;

only transactions whose econ effect can be measured shud be reported

Time Period Assumption

life of a biz can be divided into distinct time period: quarters, annum…

Cost Principle

F stms must report value of assets at historical cost

Full Disclosure Principle

all info relevant to lenders, shareholders, & investors to make informed decisions about CMP must be disclosed

Going Concern Principle

ACTs must report info about entity as if it were to operate indefinitely, or until goals were complete and not sell assets in near future;

if CMP looks like its gonna shut down, it must be disclosed to all interested parties

Matching Principle

requires accrual-based AC over cash-based AC;

expenses that helped generate revenues must be matched and both must be reported in same fiscal period

Accrual-Based Accounting

revenues & expenses r recorded when they occur

Cash-Based Accounting

sales and expenses r recorded when money is exchanged in cash

Revenue Recognition Principle

uses ABAC & records revenues when earned

RCMP

4 criteria that must be satisfied to recognize revenue under Canadian GAAP;

1. Risks and rewards hv been transferred from seller to buyer

2. Collectability is assured

3. The value of G/S can be Measured

4. Performance is achieved

PDSC

US revenue criteria are set out by the Securities and Exchange Commission:

1. persuasive evidence of an arrangement exists

2. delivery has occurred or services hv been rendered

3. seller’s price to buyer is fixed or determinable

4. collectability is reasonably assured

Materiality Principle

ACT does not hv to follow a GAAP if # in question is insignificant and/or it would be too costly to correct the insignificant mistake

Principle of Conservatism

w/there are diff & acceptable AC treatment under GAAP, ACTs shud choose method thats least likely to overstate assets and/or net income.