What is the GAAP?

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Full Disclosure Principle

requires that companies disclose all relevant circumstances and events that would make a difference to financial statement users either in the content of the financial statements or in the notes to the financial statement.

Materiality Principle

states that an amount can be ignored if its effect on the financial statements is unimportant to users' business decisions. E.g., if the price of an asset is understated by $10, will that misstatement have enough of an effect on the financial statement to matter?

Purpose of the SEC

to regulate financial practices among publicly-traded companies and to protect the public against deception or fraud in the selling of securities

Cost Principle

A principle that states that acquired assets and services should be recorded at their historical cost.

What is comparable accounting information?

Accounting information that can be used to compare different entities.

What is reliable accounting information?

Accounting information that can be verified as accurate if needed and is not just an educated guess. It is information that is verifiable, factual and neutral.

What is relevant accounting information?

Accounting information that has an impact on the financial status of a company. It is information that makes a difference in decision making.

What is consistent accounting information?

Accounting information that is constantly presented from year to year.

Economic Entity Assumption

An assumption that every economic entity can be separately identified and accounted for. It means that any activities of a business must be kept separate from any activities of the business owner.

Monetary Unit Assumption

An assumption that requires that only those things that can be expressed in money are included in the accounting records.

Time Period Assumption

Assumption that an organization's activities can be divided into specific time periods such as months, quarters, or years.

What is the CAP?

Committee on Accounting Procedure. It was created by the AIA as a sub-committee in the late 1930s to specifically create the GAAP principles.

What are the 10 basic accounting principles that make up the GAAP?

Economic Entity Assumption, Monetary Unity Assumption, Time Period Assumption, Cost Principle, Full Disclosure Principle, Going Concern Principle, Matching principle, Revenue Recognition Principle, Materiality principle and conservatism.

What is the FASB, when was it established, and who did it replace?

FASB stands for the Financial Accounting Standards Board. It was established in 1973 and replaced the CAP.

What is the IASB?

International Accounting Standards Board

What is Historical Cost?

It is the amount of money that was paid for an item when purchased and is not changed to account for inflation.

Matching Principle

Refers to the manner in which a business reports income and expenses. This principle requires that businesses use the accrual form of accounting and match business expenses in a given time period.

What does the SEC stand for?

Securities and Exchange Commission

What is the AIA?

The American Institute of Accountants. The SEC asked the AIA for assistance in examine the formation of financial statements.

Purpose of the FASB?

The FASB is an independent full-time organization dedicated to setting the guidelines and standards for accounting practices and procedures in the US. The FASB outlines the fundamental principles for the preparation of financial reports so that reporting and accounting procedures are consistent and accurate across all types of industries and financial markets.