4/16/2023 0 Comments General accounting principles![]() The time period should be consistent for as long as the business is in operation. Time Period Assumption: Accounting practices are maintained and reported during a specified period of time.Monetary Unit Assumption: Accounting records only include quantifiable transactions.Economic Entity Assumption: Economic entities like churches, governments, businesses, school districts, and social organizations must keep separate financial records.What Are the Five Basic Accounting Assumptions? Materiality Principle: The requirements of any of these principles can be ignored if there is no effect on the users’ financial information.Principle of Conservatism: When accountants have to use their own judgment to estimate transactions or expenses, they will choose the less optimistic estimate when two estimates are determined to be equally likely.Going Concern Principle: It’s assumed that the company will remain in business indefinitely when financial statements are prepared. ![]() ![]() Cost Principle: Assets are recorded at cost, which is defined as their value at the time of acquisition.Matching Principle: The costs of goods sold, commissions earned, insurance premiums, supplies used, salaries earned, and all other costs of doing business are recorded in the same period as the revenues they helped generate.Revenue Recognition Principle: Revenue is earned and then recognized only after the delivery of the product or the completion of the service.This information is usually conveyed through footnotes. Full Disclosure Principle: Financial statements should include the full disclosure of pending lawsuits, incomplete transactions, and other conditions that can significantly affect the company’s accounts.What Are the Basic GAAP Accounting Principles? ![]() Certified public accountants (CPAs) must adhere to these principles of accounting when preparing financial statements. The acronym “GAAP” stands for “generally accepted accounting principles.” They are the basic accounting principles established by the American Institute of Certified Public Accountants (AICPA) to guide financial professionals in their work. ![]()
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