GENERALLYACCEPTED ACCOUNTING PRINCIPLES GAAP. 1. ENTITY CONCEPT An accounting entity is an...
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Transcript of GENERALLYACCEPTED ACCOUNTING PRINCIPLES GAAP. 1. ENTITY CONCEPT An accounting entity is an...
GENERALLYACCEPTED
ACCOUNTING PRINCIPLES
GAAP
1. ENTITY CONCEPT
• An accounting entity is an organisation that stands apart from other organisations or individuals as a separate economic unit
• Company vs shareholder
2. RELIABILITY
• Reliable information
• Data supported by convincing evidence
• Verifiable by independent accountants
3. Going Concern Principle
• Assumes that ordinarily an entity persists indefinitely.
• Company’s existing resources will be used to fulfill business needs rather than be sold in tomorrow’s real estate or machinery market.
• Opposite to Liquidation
4. Materiality Concept
• What to include in financial statements
• An item should be included in the financial statements if its omission misleads the the reader of the financial statement.
• Fixed assets (office stationery) vs Expenses
Stable Monetary Unit
• All costs, assets etc are onverted to monetary units
• Monetary unit should not be changed over time.
Conservatism
• Expense Recognition
• Revenue Recognition
Stable Accounting Policies
• Inventory Valuation Method
LIFO FIFO WAC
• Depreciation methods
Straight Line Written Down Value etc
Historical Value
• Normally no revaluation of Assets