Accounting GAAPs and Ratios

Monetary Unit Assumption

Only transactions that can be reliably expressed as an amount of money can be included in the accounting records.

Cost Principle or Historical Cost Principle

Assets will be recorded at their historical (original) cost.

Objectivity Principle

A company’s financial statements must be based on verifiable data.

Economic Entity Concept or Business Entity Concept

The accounting for a business’s activities must be kept separate and distinct from the accounting for the activities of its owner and all other economic entities.

Going Concern Assumption or Continuing Concern Assumption

The business will continue to operate in the foreseeable future; the company will operate long enough to use its resources for their intended purpose and to complete the company’s commitments.

Time Period Concept

The assumption that a business's ongoing activities can be divided into specific, manageable segments of time for financial reporting purposes.

Revenue Recognition Principle

Requires that companies recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration they expect to be entitled to.

Matching Principle

Requires expenses to be recorded in the same accounting period as the revenues they helped to generate.

Monetary Unit Assumption

Only transaction data that can be expressed as an amount of money may be included in accounting records. Assume monetary unit is stable.

Conservatism

When choosing between 2 acceptable methods for reporting an item, accountants should use the method that results in the lower (more conservative) amount of net income or asset value.