BAF3M - GAAPs

GAAP

Generally Accepted Accounting Principles used for accounting practices.

Business Entity Concept

The accounting for a business or organization is kept separate from the personal affairs of its owner, other businesses, or organizations.

Cost Principle

Items are recorded in the books at the historical cost paid by the purchaser and do not change from their original value.

Objectivity Principle

Accounting will be recorded on objective evidence, ensuring different observers arrive at the same value for the transaction.

Source Document

Evidence such as receipts, invoices, or bills used to support recorded transactions.

Continuing Concern Concept

Assumption that a business will continue to operate unless there is evidence to suggest otherwise.

Revenue Recognition Convention

Revenue is recorded when it is earned, not necessarily when cash changes hands.

Matching/Expense Principle

Costs that generate revenue must be recorded in the same accounting period as the revenues they generate.

Principle of Conservatism

Accounting should be fair, avoiding overstatement or understatement of a business's affairs.

Time Period Concept

Accounting occurs over specific time periods known as fiscal periods, which should be of equal length.

Consistency Principle

Accountants should use the same methods and procedures across periods, with any changes clearly explained.

Materiality Principle

GAAPs should be followed unless compliance would be prohibitively expensive or make little significant difference.

Full Disclosure Principle

Any information that affects the understanding of financial statements must be included.