GAAP Principles

Acct

Accrual Basis

Record Revenues and Expenses when incurred, not when cash is received or paid

Economic Entity (business)

Must keep business and personal records SEPAEARED; also, businesses must be separated from each other

Cash Basis

record revenues and expenses only when cash is recieved, used bt IRS not GAAP

Comparability

different businesses use the SAME principles for easier comparison by investors

Concervatism

never overestimate revenues and assets and never underestimate expenses and liabilities

Consistency

same business must use the same principles year to year

Expense Recognition

record expenses when the expense happens or is incurred, not when it is paid for

Fair Value

the current market value of an item - can be used in very limited situations - usually to value an asset or revenue at a lower value rather than a higher value

Fiscal Period

refers to a period of time, usually a month, quarter, or year

Full Disclosure

if event can’t be recorded and is information that would influence investors, then must indicate in notes

Going Concern

assume the business will continue indefitely - looks long term

Historical Cost

record assets at what the business paid or gave up to get the asset, no other value matters

Matching Principle

compare revenues earned to the expenses incurred in the same fiscal period to determine net income

Materiality

any data that is important and would influence a decision maker must be recorded

Objective Evidence

must have proof that a recorded transaction happened

Relevance

the data makes a difference to the decision makers

Reliability

the data is free of error or bias and can be trusted by decision makers

Revenue Recognition

record revenues when it is earned, not when cash is recieved

Stable Dollar

inflation is ignored when presenting financial data and financial statements

Timeliness

present financial information in a timely fashion so it is still useful and not outdated

Understandability

should present financial data in a manner that a reasonable person may be able to comprehend

Unit of Measure

any recorded transaction must be able to be expressed in money (dollars)