GAAP Principles Flashcards
1
Q
What does GAAP stand for?
A
Generelly Accepted Accounting Practice
2
Q
Provide Defenition, not abbreviation
GAAP
A
body of knowledge which guides the accountant in financial reporting.
3
Q
What are the 6 GAAP principles?
H P M P M B G
A
- Historical Cost
- Matching
- Prudence
- Materiality
- Business Entity
- Going-concern
4
Q
What do the GAAP principles ensure i terms of finacial statements?
A
Financial Statements are:
* Understandable
* Useful
* Relevant
* Reliable
* Timely
* Verrifiable
* Neutral
* Comparable
* Consistent
5
Q
Explain + Example
Historical Cost
A
- Assets will be valued at the amount they were purchased for.
- If the business purchases a building for R210 000 the value of the property will remain R210 000 for the years to come.
6
Q
Explain + Example
Matching Principle
A
7
Q
Explain
Prudence Principle
A
- Financial results are shown in a conservative manner, even (possibly) pessimistic.
- Understate rather that overstate profit in the event of uncertainty.
8
Q
Explain + Example
Materiality
A
9
Q
Explain
Business Entity
A
- The financial affairs of the business are kept seperate from those of the owner.
- The wifi that connects to the owners home will not be paid through the business, but rather through the owner themselves
- Drawings is what we call such personal payments/withdrawls through the business.
Drawings is an example of this
10
Q
Explain
Going Concern
A
- Statements are prepared with the expectation that a business will continue operating in the future.
- The consumables on hand is an example of this, as the stuff is kept for the next year.
11
Q
What do the GAAP principles then require the bookkepper to do at the end of the year with the financial statement?
A
- The bookeeper needs to asses the accounts at the end of the financial year and ensure they are in compliance with the GAAP principles
AKA Final Accounts
