GAAPS (Accounting)

Business Entity Concept

A business’s transactions are distinct from its owner or owners. Accountants need to ensure that only transactions affecting the business (and not the owner’s personal ones) are being recorded and analyzed.

Going Concern Concept

Assumes that a business will continue into the foreseeable future. In practice, this means that a business has to maintain accurate accounting records, even if it does poorly.

Cost Principle

The value of an item in a business’s records stays at the value it was paid for. Even if it has increased or decreased in value, we don’t change the records.

Objectivity Principle

Accounting has to be done in a way so that different people looking at the data will calculate the same amount. Personal feelings can’t interfere.

Principle of Conservation

Accountants should make evaluations, estimates, opinions, and choose accounting methods that ensure accounting records aren’t over or under estimated.

Materiality Principle

Accountants must include any information that is material (or important) to users of information. This means that accountants have to include information that would influence an owner or investor’s decisions about the company.

Consistency Principle

Businesses have to consistently apply the same practices they follow in accounting throughout different records.