![]() The Materiality Principle governs the ability for businesses to override certain standards in the reporting of immaterial items. There are many constraints under which companies are bound to limit the types of information they use to create reports. ![]() Whenever possible, accountants should match expenses to related revenue in the same period. Unlike revenue, which is recorded when it is received, expenses are only recorded when they make a contribution to revenue. ![]() The Matching Principle deals with the timing in which expenses tied to that revenue are recorded. The fundamental idea behind revenue recognition is accrual accounting, that revenue may be recorded independent of when the business actually receives payment, in the event that the two are not closely related. This typically relates to a product or service that that the company provides, indicating a contract for service or the sale of a product. Simply put, recognizing revenue means to create a report of the business’s income. Revenue recognition and the Matching Principle are two important guides for businesses to keep their revenue in line. The section of principles under GAAP standards regulates the way businesses report their revenue, expenses, and how accountants must document this information. Of course, if evidence indicates that the business may not survive to the next year, the reporting standards change. This means that the assets will be assessed at cost, not at liquidation values, and that revenues will be reported as normal. Under this principle, the accountant operates as if the business will continue to survive for the foreseeable future. Similarly, the Going Concern Principle makes a fundamental assumption about the near future of the business. Under this principle, accountants should establish whether the business entity definition is: For example, the business entity principle assumes that the business and its functions are separate from other businesses and the owner. Within GAAP there are a certain number of assumptions that an accountant or auditor can or should make with regard to the business. Advance your career in Accounting & FinanceĪdvance your career with The University of Scranton must adhere to these standards, any businesses with dealings in other counties must also follow international accounting standards, as well as any other regulation specific to the region. While any publicly-held business with dealings in the U.S. There are over 100 pronouncements since the establishment of GAAP in 1973. These rules come from pronouncements made by the Financial Accounting Standards Board (FASB). There are 12 basic types of principles, in three different categories: Securities and Exchange Commission (SEC). While GAAP is not a government institution, it is regulated by the U.S. However, any accountant who works for a publicly-traded company must follow GAAP accounting standards for all financial statements. GAAP is not a required practice for all businesses. There several common principles that students need to understand. Students seeking a Master of Accountancy degree learn about these principles and how best to apply them to the businesses they will serve in the future. These standards, known as generally accepted accounting principles (GAAP), provide certain guidelines that accountants must follow to avoid auditing or penalty from government entities. Without a common set of accounting standards, businesses would be on their own to show that they are reporting revenue and costs or losses correctly to investors or shareholders. Accounting Standards Every Accountant Should Know
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