GAAP Principals

Question 1

What are the GAAP concepts?

Answer 1

Business entity
Historical cost
Going
Matching
Materiality
Prudence

Question 2

What is the business entity concept?

Answer 2

It provides that a business functions as a separate finacial entity from it’s owners or from any other organisation.

Question 3

What does the business enitiy concept follow?

Answer 3

It follows that the business and the owner should have their own bank account and the business transactions must be kept separate from the owner’s personal transactions

Question 4

What is the historical cost concept?

Answer 4

It provides that assets should be valued at historical cost

Question 5

What is the going concept?

Answer 5

It provides that the financial statements of a business should be prepared based on the assumption that the business will continue to operate for the foreseeable future

Question 6

What is the matching concept?

Answer 6

It provides that income and expenses are recognised and recorded in the correct time period

Question 7

What is the materiality principle?

Answer 7

It provides that all significant information must be included in the financial statements, while items which are significant need not be disclosed in detail

Question 8

What is the aim of the materiality principle?

Answer 8

To ensure that financial statements include any information that is of importance, but that the financial statement should not become unnecessarily long and confusing or difficult to read

Question 8

What is the prudence concept?

Answer 8

It provides that accountants should be conservative in the preparation of financial statement

Question 9

What is the key aim of the GAAP?

Answer 9

To ensure that the information recorded in the financial statement of a business is accurate and reliable