Accounting Principles (GAAP)

Topic

Accounting Principles (GAAP)

Area

Accounting Principles

Explanation

Accounting Principles (GAAP)

Generally Accepted Accounting Principles (GAAP) are the standard rules for financial reporting.

Key Principles

1. Going Concern: Assumes a business will continue to operate indefinitely.
2. Accrual Basis: Revenue and expenses are recorded when incurred, not when cash is exchanged.
3. Consistency: The same accounting methods are used from period to period.
4. Materiality: Only significant information needs to be disclosed.
5. Prudence / Conservatism: Recognise losses early; only recognise gains when certain.
6. Historical Cost: Assets are recorded at their original cost.
7. Dual Aspect (Double Entry): Every transaction has two aspects: a debit and a credit.
8. Matching Principle: Expenses are matched with revenues in the same accounting period.
9. Full Disclosure: All relevant information must be disclosed in financial statements.
10. Business Entity: The business is treated as separate from its owner(s).

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