GAAPs Reference Sheet (Accounting)

GAAPs

Generally Accepted Accounting Principles

Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures issued by the Accounting Standards Board (AcSB). GAAP aims to improve the clarity, consistency, and comparability of the communication of financial information.

GAAP	Definition
Economic Entity Concept	The accounting for a business or organization is kept separate from the personal affairs of its owner, other business or organization.
Going Concern Concept	Assumes that a business will continue to operate unless it is known otherwise.
Principle Of Conservatism	The accounting for a business should be fair and reasonable. The results should not overstate or understate the affairs of the business.
Objectivity Principle	The accounting will be recorded on objective evidence. Different people looking at the evidence will arrive at the same value for the transaction. This evidence is called a source document (i.e. receipt, invoice, bill, etc).
Cost Principle	Items are recorded in the books at the historical cost paid by the purchaser, and do not change from their original value.
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 revenue that they generated, not necessarily when they are paid for.
Time Period Concept	Accounting takes place over specific time periods known as fiscal periods. The fiscal periods should be of equal length when used to measure the financial progress of the business.
Consistency Principle	Accountants should apply the same methods and procedures from period to period. When changes are made, they must be explained clearly on the financial statements. This allows for comparability from period to period.
Materiality Principle	Accountants must use GAAPs except when doing so would be prohibitively expensive, difficult, and would make little significant difference in the final reported results of the business. An item is considered material if its omission or misstatement will affect the decision making process of the users. Materiality depends on the nature and size of the item. Only items material in amount or in their nature will affect the true and fair view given by a set of accounts.
Full Disclosure Principle	The full disclosure principle states that any and all information that affects the full understanding of a company's financial statements must be included with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and company takeovers.