Transaction terms and GAAP

Accounts

A page specially designed to record the changes in each individual item affecting the financial position

Ledger

 A group or file of accounts.

double entry system of accoutning

Process of recording every transaction in the ledger in two steps.

• First as a debit (or debits)

• Second as a credit (or credits)

• The total of the debit entries equals the total of the credit entries

• A = L + OE

GAAP

 Generally accepted accounting principals 

• Order of Liquidity

• The order that items can be easily converted to cash.  Short lived assets.

• Business Entity Concept

• Only those items related to the business can be included on the company’s balance sheet.

Cost principal

• The amount you list an item for on a financial statement is the price that was paid.

Matching prinicpal

 Each expense item related to revenue earned must be recorded in the same time period as the revenue it helped to earn

Revenue Recognition Principle

• Revenue must be recorded in the accounts when it is earned

 Time Period Principle

• The period of time covered by the financial statements is called the

accounting period (fiscal). The accounting period must always cover the same period of time