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GAAP

Accounting Principles

TermDefinition
Explain the fundamental qualitative characteristics: Relevant capable of making a difference in decisions (predictive value, feedback value, timely)
Explain the fundamental qualitative characteristics: Faithful representation information is complete, neutral (free from bias), and without material error
Explain the enhancing qualitative characteristics: Comparability information must be prepared so it can be used to make comparisons between companies and for a single company over time.
Explain the enhancing qualitative characteristics: Verifiability information must be able to be checked by other observers who would reach similar conclusions.
Explain the enhancing qualitative characteristics: Timeliness information must be available early enough to help with decisions.
Explain the enhancing qualitative characteristics: Understandability information must make sense to reasonably well informed users of the information
Explain the Assumption/Concept Entity Assumption Accounting draws a boundary around each organization to be accounted for. Separate business activities from owners' activities
Explain the Assumption/Concept: Continuity (Going-concern) Assumption Accountants assume the business will continue operating for the foreseeable future.
Explain the Assumption/Concept: Stable-monetary-unit Assumption Accounting information is expressed primarily in monetary terms that ignore the effects of inflation.
Explain the Assumption/Concept: Cost Constraint The cost of producing information should not exceed the expected benefits to users.
Explain the Assumption/Concept: Time-period concept Ensures that accounting information is reported at regular intervals.
Explain the Principle: Historical Cost principle Assets and services, revenues and expenses are recorded at their actual historical cost.
Explain the Principle: Revenue Recognition Principle Tells accountants when to record revenue (only after it has been earned) and the amount of revenue to record (the cash value of what has been received).
Explain the Principle: Expense Recognition Principle Directs accountants to (1) identify and measure all expenses incurred during the period and (2) match the expenses against the revenues earned during the period. The goal is to measure net income.
Explain the Principle: Consistency principle Businesses should use the same accounting methods from period to period.
Explain the Principle: Disclosure principle A company's financial statements should report enough information for outsiders to make informed decisions about the company.
Define the Element of a Balance Sheet: Asset An economic resource that is expected to be of benefit in the future.
Define the Element of a Balance Sheet: Liability An economic obligation (debt) payable to an individual or an organization outside the business.
Define the Element of a Balance Sheet: Stockholders' Equity The stockholders' ownership interest in the assets of a corporation.
Define the Element of an Income Statement: Revenue Increase in retained earnings from delivering goods or services to customers or clients.
Define the Element of an Income Statement: Expense Decrease in retained earnings that result from operations; the cost of doing business; opposite of revenues.
The two owners of the Sneaky Sandwich Shop paid for their family ski trip with business checks and recorded the payments as business expenses. Violated Entity Assumption
The local book store purchased store equipment for R450 from Staples and recorded the purchase at R500, which was the price listed in the Staples catalogue. Violated Historical Cost Principle
The West Company shipped some of its product to a company that is bankrupt and unlikely to pay. The Company recorded the shipment as revenue. Violated Revenue Recognition Principle (although the company shipped the goods, revenue should not be recorded if the customer did not order the goods or cannot pay for the goods)
Employees of the Boston Company worked during August but won't get paid until September. The Boston Company recorded the August wages as an August expense even though the wages were not paid until September. Followed Expense Recognition Principle
The Abramoff Company sold land worth R1,000,000 to Bernie Company for R800,000 because the president of the Bernie Company is the brother of the president of the Abramoff Company. This family relationship was only known to a few insiders of each company. Violated Disclosure Principle
Created by: lesterstoffels