GENERALLYACCEPTED

ACCOUNTING PRINCIPLES

GAAP

1. ENTITY CONCEPT

• An accounting entity is an organisation that stands apart from other organisations or individuals as a separate economic unit

• Company vs shareholder

2. RELIABILITY

• Reliable information

• Data supported by convincing evidence

• Verifiable by independent accountants

3. Going Concern Principle

• Assumes that ordinarily an entity persists indefinitely.

• Company’s existing resources will be used to fulfill business needs rather than be sold in tomorrow’s real estate or machinery market.

• Opposite to Liquidation

4. Materiality Concept

• What to include in financial statements

• An item should be included in the financial statements if its omission misleads the the reader of the financial statement.

• Fixed assets (office stationery) vs Expenses

Stable Monetary Unit

• All costs, assets etc are onverted to monetary units

• Monetary unit should not be changed over time.

Conservatism

• Expense Recognition

• Revenue Recognition

Stable Accounting Policies

• Inventory Valuation Method

LIFO FIFO WAC

• Depreciation methods

Straight Line Written Down Value etc

Historical Value

• Normally no revaluation of Assets