Generally Accepted Accounting Principles

Prepared by:Armocilla

LugayEscarillaMadrigalRamosTobias

2H2

Ms. Lolita Pujol

Generally Accepted Accounting Principle (GAAP)

• Rules that govern how accountants measure, process and communicate financial information

• Ensures that consistent accounting procedures are followed in recording the events created by business transactions and in preparing financial statements

Generally Accepted Accounting Principle (GAAP)

• The Business Entity Concept

• The Continuing Concern Concept

• The Time Period Concept• The Consistency Principle• The Principle of

Conservatism• The Objectivity Principle

• The Materiality Principle

• The Monetary-unit Concept

• The Full Disclosure Principle

• The Cost Principle• The Revenue

Recognition Convention• The Matching Principle

The Business Entity Concept

• From an accounting standpoint, the business firm is

treated as a separate economic entity

• Only the business entity’s activities and transactions

should be recorded and reported

• The personal activities of the owner(s) and other

business entities are accounted for separately, unless

the activities have direct impact upon the business firm

The Continuing Concern Concept

• Recognizes that a firm will remain in operation

for the foreseeable future

• The firm is expected to continue to operate

long enough to meet its obligations and fulfill

its plans

The Time Period Concept

• Recognizes that timely financial reports must

be made to those who need the information

in these reports

• Can be monthly, quarterly or annually

• The year is the basic time unit

The Consistency Principle

• States that once an accounting method has

been adopted, it should be consistently

followed from period to period in order for

accounting information to be comparable

The Principle of Conservatism

• Holds that when equally correct accounting

alternatives are available for recording or reporting a

transaction, the accountant should select the

alternative that will result in least favorable outcome

for the business in the current period

• Minimize any overstatement of assets and income

and understatement of liabilities

The Objectivity Principle

• States that all business transactions must be

supported by objective evidence proving that the

transaction did in fact occur

• When independent evidence is not available to

document the results of a business transaction,

estimates must be made

The Materiality Principle

• States that material events must be accounted

for according to accounting rules

The Monetary-unit Concept

• Holds that business transactions must be

recorded and reported in terms of money

• Peso is the monetary unit in the Philippines

The Full Disclosure Principle

• Requires that the financial statements of a business

should be complete and should report sufficient

economic information relating to the business

entity to make the statements understandable

• Information may be: financial statements or

supplementary attachments

The Cost Principle

• Holds that most assets and liabilities are

recorded at their transaction cost

• Provides an objective and verifiable basis for

the initial recording of assets and liabilities

The Revenue Recognition Convention

• States that revenue resulting from business

transactions should be recorded only when a

sale has been made or earned

The Matching Principle

• Requires that the entity’s operational efforts

(expenses) be matched to the entity’s

operational accomplishments (revenues)

• States that all expenses must be recorded in

the accounting period as the revenue which

they helped to generate

The Matching Principle

2 Accounting Methods for determining where to record the result of a business transaction:– Cash Accounting• Records the result of business transactions only when

cash is received or paid out

– Accrual Accounting• Adjusts the accounting records by recording expenses

which re incurred during an accounting period but which are not actually paid until the following period; already earned but not yet collected

Reference/s

• Accounting for Hotels and Restaurants: A User

Perspective (2007) by Ma. Elenita Balatbat

Cabrera, pages 50-54