Generally accepted accounting principles

Generally accepted accounting principles

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  2H2Generally Accepted AccountingPrinciplesPrepared by:ArmocillaLugayEscarillaMadrigalRamosTobiasMs. Lolita Pujol
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  Generally Accepted AccountingPrinciple (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
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  Generally Accepted AccountingPrinciple (GAAP)The Business Entity ConceptThe Continuing Concern ConceptThe Time Period ConceptThe Consistency PrincipleThe Principle of ConservatismThe Objectivity PrincipleThe Materiality PrincipleThe Monetary-unit ConceptThe Full Disclosure PrincipleThe Cost PrincipleThe Revenue Recognition ConventionThe Matching Principle
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  The Business EntityConceptFrom an accounting standpoint, the business firm is treated as a separate economic entityOnly the business entity’s activities and transactions should be recorded and reportedThe personal activities of the owner(s) and other business entities are accounted for separately, unless the activities have direct impact upon the business firm
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  The Continuing ConcernConceptRecognizes that a firm will remain in operation for the foreseeable futureThe firm is expected to continue to operate long enough to meet its obligations and fulfill its plans
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  The Time PeriodConceptRecognizes that timely financial reports must be made to those who need the information in these reportsCan be monthly, quarterly or annuallyThe year is the basic time unit
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  The Consistency PrincipleStatesthat once an accounting method has been adopted, it should be consistently followed from period to period in order for accounting information to be comparable
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  The Principle ofConservatismHolds 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 periodMinimize any overstatement of assets and income and understatement of liabilities
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  The Objectivity PrincipleStatesthat all business transactions must be supported by objective evidence proving that the transaction did in fact occurWhen independent evidence is not available to document the results of a business transaction, estimates must be made
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  The Materiality PrincipleStatesthat material events must be accounted for according to accounting rules
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  The Monetary-unit ConceptHoldsthat business transactions must be recorded and reported in terms of moneyPeso is the monetary unit in the Philippines
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  The Full DisclosurePrincipleRequires 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 understandableInformation may be: financial statements or supplementary attachments
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  The Cost PrincipleHoldsthat most assets and liabilities are recorded at their transaction costProvides an objective and verifiable basis for the initial recording of assets and liabilities
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  The Revenue RecognitionConventionStates that revenue resulting from business transactions should be recorded only when a sale has been made or earned
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  The Matching PrincipleRequiresthat 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 Principle2Accounting Methods for determining where to record the result of a business transaction:Cash AccountingRecords the result of business transactions only when cash is received or paid outAccrual AccountingAdjusts 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/sAccounting for Hotelsand Restaurants: A User Perspective (2007) by Ma. ElenitaBalatbat Cabrera, pages 50-54