Accounting principle & concept by sarmad baloch

Accounting principle & concept by sarmad baloch

• 1.
  Generally Accepted Accounting Principles Preparedby: Sarmad baloch BSIT (5th A) (ISP) 2H2
• 2.
  Generally Accepted Accounting Principle(GAAP) • Rules that govern how accountants measure, process and communicate financial information • Ensures that consistent accounting procedures are followed in recording the events created by business transactions and in preparing financial statements
• 3.
  Generally Accepted Accounting Principle(GAAP) • The Business Entity Concept • The Continuing Concern Concept • The Time Period Concept • The Consistency Principle • The Principle of Conservatism • The Objectivity Principle • The Materiality Principle • The Monetary-unit Concept • The Full Disclosure Principle • The Cost Principle • The Revenue Recognition Convention • The Matching Principle
• 4.
  The Business EntityConcept • From an accounting standpoint, the business firm is treated as a separate economic entity • Only the business entity’s activities and transactions should be recorded and reported • The personal activities of the owner(s) and other business entities are accounted for separately, unless the activities have direct impact upon the business firm
• 5.
  The Continuing ConcernConcept • Recognizes that a firm will remain in operation for the foreseeable future • The firm is expected to continue to operate long enough to meet its obligations and fulfill its plans
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  The Time PeriodConcept • Recognizes that timely financial reports must be made to those who need the information in these reports • Can be monthly, quarterly or annually • The year is the basic time unit
• 7.
  The Consistency Principle •States that once an accounting method has been adopted, it should be consistently followed from period to period in order for accounting information to be comparable
• 8.
  The Principle ofConservatism • Holds that when equally correct accounting alternatives are available for recording or reporting a transaction, the accountant should select the alternative that will result in least favorable outcome for the business in the current period • Minimize any overstatement of assets and income and understatement of liabilities
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  The Objectivity Principle •States that all business transactions must be supported by objective evidence proving that the transaction did in fact occur • When independent evidence is not available to document the results of a business transaction, estimates must be made
• 10.
  The Materiality Principle •States that material events must be accounted for according to accounting rules
• 11.
  The Monetary-unit Concept •Holds that business transactions must be recorded and reported in terms of money • Peso is the monetary unit in the Philippines
• 12.
  The Full DisclosurePrinciple • Requires that the financial statements of a business should be complete and should report sufficient economic information relating to the business entity to make the statements understandable • Information may be: financial statements or supplementary attachments
• 13.
  The Cost Principle •Holds that most assets and liabilities are recorded at their transaction cost • Provides an objective and verifiable basis for the initial recording of assets and liabilities
• 14.
  The Revenue RecognitionConvention • States that revenue resulting from business transactions should be recorded only when a sale has been made or earned
• 15.
  The Matching Principle •Requires that the entity’s operational efforts (expenses) be matched to the entity’s operational accomplishments (revenues) • States that all expenses must be recorded in the accounting period as the revenue which they helped to generate
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  The Matching Principle 2Accounting Methods for determining where to record the result of a business transaction: – Cash Accounting • Records the result of business transactions only when cash is received or paid out – Accrual Accounting • Adjusts the accounting records by recording expenses which re incurred during an accounting period but which are not actually paid until the following period; already earned but not yet collected
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  Reference/s • Accounting forHotels and Restaurants: A User Perspective (2007) by Ma. Elenita Balatbat Cabrera, pages 50-54