Generally Accepted Accounting Principles (GAAP)

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Generally Accepted Accounting Principles (GAAP) Introduction: Generally accepted accounting principles reflect the latest accounting methodologies and are updated frequently. Generally Accepted Accounting Principles are on which companies rely on while preparing the financial statements. The standards for GAAP are set by the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB). Corporate accountants are governed by the GAAP rules and procedures when they present the details of the company’s financial operations. GAA financial results provide a reliable means of comparing the financial results from industry to industry and from year to year. GAAP principles include the standards, conventions…show more content…
The owner cannot put any personal asset on the balance sheet of the company, and the balance sheet should only be showing the position of the company only. Any personal expenditure should not be recorded or shown in the balance sheet of the firm. Examples: • If Omer is the CEO of a firm, and he buys a new home or car, these are assets for him, but these won’t be included in the balance sheet of the firm. As these are his personal assets and not the company’s assets so according to the Business Entity Concept, private assets should be kept separate from those of the firm. 2) The Objectivity…show more content…
Objective evidence is basically the proof that a certain transaction took place and at what amount it took place. The source document like invoice etc shows that the transaction is related to the business and all the information related to the transactions is seen before recording the transaction to make sure that the transaction was not personal and it was related to the business. Example: • For example banks keep evidences for every transaction they make and keep record of those transactions in order to avoid future problems. • Suppose a company wishes to expand the business but Government requires it financial reports to see where the company stands. The company can provide the reports or statements as evidence to make its position clear. • Also, for instance a company is dealing with imports and exports, and the government needs to check what kind of transactions are they trying to make, the company must be able to show the proper evidence for all the transactions being made. 3) The matching Principle: The matching principle basically states that the revenue earned in a certain period, and the expenses incurred in earning that revenue must be recorded in the same

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