GAAPs Flashcards
Consistency Principle
The consistency principle states that once a company adopts a certain accounting policy or method, it must be applied consistently in the future as well.
Cost Principle
The cost principle requires assets to be recorded at the cost to acquire them and remain at that amount on the balance sheet until their disposal.
Full Disclosure Principle
This principle states that companies should disclose all information that is relevant to their financial statements. This includes information about their assets, liabilities, revenues, and expenses.
Going-Concern Principle
It assumes that during and beyond the next fiscal period a company will complete its current plans, use its existing assets and continue to meet its financial obligations.
Materiality Principle
The accounting concept of materiality means that only information that is important to investors needs to be included in the financial statements. Information about trivial matters can be excluded.
Objectivity Principle
The objectivity principle emphasises that financial statements should be objective, i.e., the accounting information should be unbiased and free of any external or internal influence when it comes to accounting. The idea is that everyone looking at your records should trust that they’re accurate because they’re based on real, reliable proof, not personal feelings or guesses.
Revenue Recognition Principle
The principle requires that businesses recognize revenue when it’s earned (accrual accounting) rather than when payment is received (cash accounting).
Business Entity Principle
The business entity concept states that the business is separate from the owner(s) of the business. Therefore the accounting records for even the simplest business, the sole trader, must be kept separate from the personal affairs of the owner or owners.
Time Period Concept
The accounting guideline that allows the accountant to divide up the complex, ongoing activities of a business into periods of a year, quarter, month, week, etc. The precise time period covered is included in the heading of the income statement, statement of cash flows, and the statement of stockholders’ equity.
The Principle of Conservatism
Accounting conservatism is a principle that requires company accounts to be prepared with caution and high degrees of verification. All probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized.
The Matching Principle
Matching principle is an accounting principle for recording revenues and expenses. It requires that a business records expenses alongside revenues earned. Ideally, they both fall within the same period of time for the clearest tracking.
The Revolution Model
Revaluation of a fixed asset is the accounting process of increasing or decreasing the carrying value of a company’s fixed asset or group of fixed assets to account for any major changes in their fair market value.
