Generally Accepted Accounting Principles (GAAP) is a standard guidelines and accounting rules that companies used to prepare, present, and report financial information. By following this framework, companies can ensure that any financial information presented is uniformly consistent, relevant, feasible and objective. Through this standardization, corporate financial information can more readily be reviewed and interpreted by investors, stockholders, banks and other potential creditors and also promotes creditability of a company and precisely reflects its financial position. Here are some of the basic accounting principles and concepts: Business Entity: This principal treats the company as a stand-alone unit, separate from its owners and other businesses. Personal accounts of owners/partners should be separated from profits and expenses of the company.
Cost: This principle states that the accounting for purchases must be at their cost price; these figures are generally not adjusted to current market value. However, today most of the companies report only the market value.
Continuity or Going Concern: This principle presumes that a company will function smoothly and the business entity will continue to operate in the projected future.
Conservatism: This principle provides that accounting for a company should be fair and reasonable. The estimates requiring subjective analysis should not overstate asset and revenue or understate liabilities and expenses.
Consistency: According to this principle, the accounting methods used should be consistent when applied from period to period. Full disclosure of changes in accounting methods is required. For example, the same rate of percentage should be applied for all depreciation.
Time Period: This principle specifies a particular time periods for which the financial reports are prepared also known as fiscal periods. It can be either yearly, or short period like a quarter or a month. The accounting information...
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