Generally Accepted Accounting Principles

matching principle

An accounting principle requiring that all costs of generating revenue be accrued and expensed in the same period as the related revenue; it relates incurred expense to the same period as the revenue it generated.

accounting entity

A distinct business unit or other organization for which accounting records are kept and financial statements are prepared.

cash-basis accounting

An accounting method that involves the recognition of revenue and expenses when cash is received and paid, respectively, regardless of the period in which the corresponding transactions and events actually occur.

accrual basis of accounting

An accounting method whereby revenues are recognized in the specific accounting period in which they are earned, without regard to the date of cash receipt, and expenses are assigned to the accounting period in which they are used to produce revenue, without regard to the date of cash payment.

full disclosure principle

An accounting principle that calls for complete and understandable explanation or elaboration of the information found in the financial statements, it requiring that all details be presented in the footnotes to the statements that are necessary for their users to be properly informed.

revenue recognition principle

An accounting principle that requires the recognition of revenue in the period when it is earned, regardless of when the actual cash flow from the transaction occurs.

local generally accepted accounting principles

National accounting standards.

matching

Relating incurred expense to the same period as the revenue it generated.

business entity assumption

The accounting assumption that considers the personal assets of a firm's owners to be separate and distinct from the business entity's assets, it applying to all legal forms of business (i.e., sole proprietorships, partnerships and corporations).

going concern assumption

The accounting assumption that expects accounting entities, under all ordinary circumstances, to continue existing indefinitely in the future, it being central to the historical cost convention in financial reporting, among other things.

periodicity assumption

The accounting assumption that identifies economic activity with time periods and that the activity of each time period can be measured and reported.

conservatism

The accounting constraint requiring that when different valuation methods are available, the alternative having the least favorable immediate financial impact must be chosen.

consistency

The accounting constraint requiring the continued uniformity in the accounting methods applied from period to period in the preparation of financial statements and that they conform with universal methods or to those of the industry of which it is part.

materiality

The accounting constraint stipulating that any information of such importance that its inclusion in or omission from financial records could have a material impact on financial statements must be specially disclosed either in the body of the statements or the notes to the statements.

lower-of-cost-or-market rule

The accounting requirement that assets be valued at either the lower of their historical cost or their current replacement cost; it is based on the concept of conservatism.

generally accepted accounting principles

The conventions, rules and procedures of accounting that must be followed in recording transactions and events and in preparing the financial statements for use outside of the firm.

US generally accepted accounting principles

The overall conventions, rules and procedures that define accepted accounting practice to be followed by publicly traded companies in the United States, which are largely set by the Financial Accounting Standards Board (FASB).

accounting period

The period of time during which financial transactions and events have occurred and for which financial statements are customarily prepared, commonly quarterly and annually.

realization

The process of converting non-cash resources and rights into money, which is achieved through the sale of an asset for cash or converting claims to cash; it establishes the completion of the earning process.

recognition

The process of formally recording a business transaction or event in an entity's financial accounting records.

International Financial Reporting Standards

The set of principles-based accounting standards, interpretations and framework developed by the International Accounting Standards Board (IASB) that serves as the global standard for the preparation of public company financial statements.

accounting principles

The standards and practices applied in financial reporting, telling accountants what items to measure and when and how to measure them.