Acct GAAP

Specific Time Principle

defined and relevant time frame

only including transactions and events that pertain to that period

Matching Principle 

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

Economic Entity Principle

company’s financial activities separate from the personal financials

Revenue Recognition 

Revenue must be recorded when it is earned, not when cash is received

Risks in General

Recording Errors

statements numbers align with transactions 

Balance sheet

Assets = Liabilities + Equity

Net Income on IS = Net Income on CFS

Cash on CFS = Cash on Balance Sheet

Income Statement (IS)

profitability over a period

revenue - expenses = net income

Cash Flow Statement (CFS)

actual cash the company generated or used

accrual basis

includes non-cash items and timing differences

beginning cash + net change in cash = ending cash

how they all connect

IS → CFS: net income is starting point for CFS
CFS → BS: ending cash is BS cash line

IS → BS: net income increases retained earnings