GAAps

The full disclosure principle

states that all information needed for a full understanding of the company’s financial affairs must be included in the financial statements.

The materiality principle

requires accountants to follow GAAPs except when to do so would be expensive or difficult, and where it makes no real difference if the rules are ignored.

The consistency principle

 requires that a business must use the same accounting methods and procedures from period to period.

The Cost Principle

states that the accounting for purchases must be at

the cost price to the purchaser. In other words, when you buy an asset, you will record it at the price you paid (even if you got an amazing deal that understates the value of the asset).

The matching principle

states that each expense item related to revenue earned must be recorded in the same time period as the revenue it helped earn.

The time period concept

accounting will take place over specific time periods known as fiscal periods. Ex: I will not make an income statement for a 12 day period and then make another one for a 46 day period. It has to be done monthly, quarterly, half-yearly or yearly.

Revenue recognition principle:

Revenue must be recorded in the accounts (recognized) at the time the transaction is completed. In other words, as soon as you provide a service, you will record the revenue as being earned. It doesn’t matter whether cash was paid or the customer owes you money – if you provided the service, you earned a revenue.

Objectivity Principle:

All transactions must be recorded on the basis of objective evidence. Simply, transactions are recorded as FACT and not as personal opinion or thought. There MUST be a source document.

The Principle of Conservatism

states that accounting for a business should be fair and reasonable. Accountants in their work are required to make judgement calls. They should do so in a way where profits are not overstated or understated. They should be stated fairly.

The Continuing Concern Concept

assumes that a business will continue to operate unless it is known that such is not the case. This is also known as the Going Concern Concept.

The Business Entity Concept

states that accounting for a business organization must be kept separate from the personal affairs of its owner; or from any other business or organization.