accounting principles

What is GAAP?

Generally Accepted Accounting Principles; a standardized framework of guidelines for financial accounting used in any given jurisdiction.

The Entity Assumption

The principle that a business is a separate legal and accounting entity from its owners, and their transactions must be kept distinct.

The Going Concern Assumption

The accounting assumption that a business will continue to operate for the foreseeable future and has no intention of liquidating.

The Monetary Unit Assumption

The assumption that all business transactions can be expressed in terms of a stable currency, such as the US Dollar ( \$ ).

The Time Period Assumption

The practice of dividing the economic life of a business into artificial time periods, such as months, quarters, or years, for reporting purposes.

The Revenue Recognition Principle

The rule that revenue should be recognized in the period in which it is earned, regardless of when the payment is received.

The Matching Principle

Often referred to as the expense recognition principle, it dictates that expenses must be matched with the revenues they helped generate in the same accounting period.

The Historical Cost Principle

A principle stating that assets should be recorded and maintained on the books at their original purchase price rather than their current market value.

The Full Disclosure Principle

The requirement that any information that could materially impact a reader's understanding of the financial statements must be disclosed in the reports or footnotes.

The Accounting Equation

The fundamental formula that serves as the basis for double-entry bookkeeping: Assets = Liabilities + Equity