Analy Explained Accounting Principles (G. A. A. P)

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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (G.A.A.P) GAAP is an international convention of good accounting practices. It is based on the following core principles. In certain instances particular types of accountants that deviate from these principles can be held liable. The Business Entity Concept:- The business entity concept provides that the accounting for a business or organization be kept separate from the personal affairs of its owner, or from any other business or organization. This means that the owner of a business should not place any personal assets on the business balance sheet. The balance sheet of the business must reflect the financial position of the business alone. Also, when transactions of the business are recorded, any personal…show more content…
The values of the assets belonging to a business that is alive and well are straightforward. For example, 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 unfavorable circumstances. The values of such assets often cannot be determined until they are actually…show more content…
These fiscal periods are of equal length, and are used when measuring the financial progress of a business. Example The income statement is the financial statement that best shows the periodicity assumption. The income statement presents the business performance for a given time period. A year-end income statement shows the income and expense performance for the company for the entire year. Monthly and quarterly income statements are often issued as well. The balance sheet, on the other hand, only shows a picture of the company on a single date in time. The balance sheet does not reflect a period of time but rather a moment in time. 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
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