GAAP Accounting (Generally accepted accounting principles)

GAAP Accounting (Generally accepted accounting principles)

1. Submit To Sir Adeel Nasir Saad Ahmad Khalid 41 Shahab Hussain 18 Faizan Rasool 13 Hassan Nawaz 42 Haroon Rasheed 40 General Accepted Accounting Principle

2. 1 .Economic e ntity assumption 7 .Matching principle 2 .Monetary u nit assumption 8 .The revenue recognition convention 3 .The time period concept 9 .Materiality principle 4 .The cost principle 10 .The principle of conservatism 5 .The full disclosure principle 11 . T he objectivity principle 6 .The continuing concern 12 .The consistency principle concept Generally excepted accounting principles(GAAP )

3. Generally Accepted Accounting Principles . A widely accepted set of  rules , conventions, standards, and procedures for reporting  financial  information, as established by the Financial Accounting Standards Board . The common set of accounting principle , standards and procedures. Combination of authoritative standard set by policy boards and simply, the commonly accepted ways. GAAP  is an international convention of good accounting practices. It is based on the following core principles GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (G.A.A.P)

4. 1 .The Revenue Recognition Convention The revenue recognition convention provides that revenue be taken into the accounts (recognized) at the time the transaction is completed. Usually, this just means recording revenue when the bill for it is sent to the customer. If it is a cash transaction, the revenue is recorded when the sale is completed and the cash received.

5. It is important to take revenue into the accounts properly. If this is not done, the earnings statements of the company will be incorrect and the readers of the financial statement misinformed It is not always quite so simple. Think of the building of a large project such as a dam. It takes a construction company a number of years to complete such a project. The company does not wait until the project is entirely completed before it sends its bill. Periodically, it bills for the amount of work completed and receives payments as the work progresses. Revenue is taken into the accounts on this periodic basis .

6. The principle of conservatism provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor understates the affairs of the business or the results of operation.   2 .The Principle of Conservatism

7. The continuing concern concept assumes that a business will continue to operate, unless it is known that such is not the case. The values of the assets belonging to a business that is alive and well are straightforward . 3 .The Continuing Concern Concept

8. a supply of envelopes with the company's name printed on them would be valued at their cost. This would not be the case if the company were going out of business. In that case, the envelopes would be difficult to sell because the company's name is on them. When a company is going out of business, the values of the assets usually suffer because they have to be sold under unfavourable circumstances. The values of such assets often cannot be determined until they are actually sold. For example ,

9. 4 .The Full Disclosure Principle The full disclosure principle states that any and all information that affects the full understanding of a company's financial statements must be include with the financial statements. Some items may not affect the ledger accounts directly. These would be included in the form of accompanying notes . Examples of such items are outstanding lawsuits, tax disputes, and company takeovers

10. The consistency principle requires accountants to apply the same methods and procedures from period to period. When they change a method from one period to another they must explain the change clearly on the financial statements. The readers of financial statements have the right to assume that consistency has been applied if there is no statement to the contrary. The consistency principle prevents people from changing methods for the sole purpose of manipulating figures on the financial statements.   5 .The Consistency Principle

11. 6 . Monetary Unit Assumption Economic activity is measured in U.S. dollars, and only transactions that can be expressed in U.S. dollars are recorded. Because of this basic accounting principle, it is assumed that the dollar's purchasing power has not changed over time. As a result accountants ignore the effect of inflation on recorded amounts . For example, dollars from a 1960 transaction are combined (or shown) with dollars from a 2014 transaction.

12. 7 . Economic Entity Assumption The accountant keeps all of the business transactions of a sole proprietorship separate from the business owner's personal transactions. For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities.

13. 8 .The Time Period Concept The time period concept provides that accounting take place over specific time periods known as fiscal periods. These fiscal periods are of equal length, and are used when measuring the financial progress of a business.

14. There are times when the above type of objective evidence is not available. For example, a building could be received as a gift. In such a case, the transaction would be recorded at fair market value which must be determined by some independent means.

15. The objectivity principle states that accounting will be recorded on the basis of objective evidence. Objective evidence means that different people looking at the evidence will arrive at the same values for the transaction. Simply put, this means that accounting entries will be based on fact and not on personal opinion or feelings.   9 .The Objectivity Principle

16. 10 .The Cost Principle The cost principle states that the accounting for purchases must be at their cost price. This is the figure that appears on the source document for the transaction in almost all cases. There is no place for guesswork or wishful thinking when accounting for purchases. The value recorded in the accounts for an asset is not changed until later if the market value of the asset changes. It would take an entirely new transaction based on new objective evidence to change the original value of an asset.  

17. This accounting principle requires companies to use the  accrual basis of accounting . The matching principle requires that expenses be matched with revenues . For example, sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid. 11 . Matching Principle

18. Because we cannot measure the future economic benefit of things such as advertisements (and thereby we cannot match the ad expense with related future revenues), the accountant charges the ad amount to expense in the period that the ad is run.

19. Because of this basic accounting principle or guideline, an accountant might be allowed to violate another accounting principle if an amount is insignificant. Professional judgment is needed to decide whether an amount is insignificant or immaterial. An example of an obviously immaterial item is the purchase of a $150 printer by a highly profitable multi-million dollar company. Because the printer will be used for five years, the  matching  principle directs the accountant to expense the cost over the five-year period. The  materiality  guideline allows this company to violate the matching principle and to expense the entire cost of $150 in the year it is purchased. The justification is that no one would consider it misleading if $150 is expensed in the first year instead of $30 being expensed in each of the five years that it is used. Because of materiality, financial statements usually show amounts rounded to the nearest dollar, to the nearest thousand, or to the nearest million dollars depending on the size of the company. 12 . Materiality