US GAAP Generally Accepted Accounting Principles, US GAAP or simply GAAP are terms for the generally accepted accounting principles and rules used in the.

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Presentation transcript:

US GAAP Generally Accepted Accounting Principles, US GAAP or simply GAAP are terms for the generally accepted accounting principles and rules used in the United States.

These are used to prepare, present and report financial statements  for a wide variety of entities

Basic concepts To achieve basic objectives and implement fundamental qualities GAAP has four basic assumptions, four basic principles, and four basic constraints. 1. Accounting Entity: assumes that the business is separate from its owners or other businesses. Revenue and expense should be kept separate from personal expenses.

2. Going Concern: assumes that the business will be in operation indefinitely. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain this assumption is not applicable. The business will continue to exist in the unforeseeable future. 3. Monetary Unit principle: assumes a stable currency is going to be the unit of record. The FASB accepts the nominal value of theUS Dollar as the monetary unit of record unadjusted for inflation.

4. The Time-period principle implies that the economic activities of an enterprise can be divided into artificial time periods.

Principles 1. Historical cost  principle requires companies to account and report based on acquisition costs rather than fair market value 

2. Revenue recognition principle requires companies to record when revenue is (1) realized or realizable and (2) earned, not when cash is received. This way of accounting is called accrual basis accounting. 3. Matching principle. Expenses have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue..

4. Full Disclosure principle 4. Full Disclosure principle. Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Information disclosed should be enough to make a judgment while keeping costs reasonable. Information is presented in the main body of financial statements, in the notes or as supplementary information

Constraints[ 1. Objectivity principle: the company financial statements provided by the accountants should be based on objective evidence. 2. Materiality principle: the significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual.

Consistency principle: It means that the company uses the same accounting principles and methods from period to period. Conservatism principle: when choosing between two solutions, the one that will be least likely to understate assets and income should be picked