Accounting is called the language of business that which communicates the financial condition and performance of a business to interested users, also referred to as stakeholders.
In order to become effective in carrying out the accounting procedure, as well as in communicating the financial information of the business, there is a widely accepted set of rules, concepts and principles that governs the application of the accounting procedures, and it is referred to as the Generally Accepted Accounting Principles or GAAP.
In this article, you will learn and familiarize yourself with the accounting principles and accounting concepts relevant in performing the accounting procedures. It is relevant to understand it because you need to abide by these concepts and principles every time you analyze record, summarize, report and interpret financial transactions of a business. Guidelines on Basic Accounting Principles and Concepts
GAAP is the framework, rules and guidelines of the financial accounting profession with a purpose of standardizing the accounting concepts, principles and procedures. Here are the basic accounting principles and concepts under this framework:
1. Business Entity
A business is considered a separate entity from the owner(s) and should be treated separately. Any personal transactions of its owner should not be recorded in the business accounting book, vice versa. Unless the owner’s personal transaction involves adding and/or withdrawing resources from the business.
2. Going Concern
It assumes that an entity will continue to operate indefinitely. In this basis, assets are recorded based on their original cost and not on market value. Assets are assumed to be used for an indefinite period of time and not intended to be sold immediately.
3. Monetary Unit
The business financial transactions recorded and reported should be...