GAAPs

The Materiality Principle

Accountants must follow GAAPs except in cases where it would be too expensive or difficult, and where it makes no real difference if the rules are ignored. It must not affect the net income of the company or the reader's ability to judge the financial statements, if a rule is temporarily ignored.

The Principle of Conservatism

Accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do this in a way that assets or profits are neither overstated nor understated.

The Objectivity Principle

Accounting is based on objective evidence and therefore anyone viewing the evidence will create the same transaction.

The Full Disclosure Principle

All information needed to understand a company's financial statements is included in the financial statements.

The Continuing Concern Concept

Assumes that a business will continue to operate unless it is known that it will not.

The Consistency Principle

Business should apply the same accounting methods from period to period. If a change is made, they must explain it clearly on the financial statements.

The Matching Principle

Expenses incurred to generate revenues must be recognized at the same time as the revenue is.

The Business Entity Concept

Provides that the accounting for a business or organization is to be kept separate from the personal affairs of its owner, or from any other business or organization.

The Time Period Concept

Requires that accounting takes place over specific time periods known as fiscal periods.

The Revenue Recognition Convention

Revenue is to be recorded in the accounts at the time the transaction is completed.

The Cost Principle

States that assets should be recorded at their actual cost measured on the date of purchase. Cost is not adjusted with changes in market.