GAAP Concepts and Standards

Knowing about ethics and standards is important because this lets the accountant know what is expected of him. But to really understand these standards and concepts, you have to know what they are. Here are those concepts and principles you must know to follow GAAP:

 

·        The Entity: An entity is an organization or economic unit that operates as an independent of anyone else.

·        Reliability Principle: This is the principle that is backed up by every accountant. It is based on information that is reliable. Some accountants call this the objectivity principle. Supposedly accountants check and double check their work to make sure that everything is verified ad reliable. Without being able to rely on this data, everything is just a guess.

·        The Cost Principle: According to this principle, when accountants record transactions that involve assets and services, these transactions must be recorded going by actual costs or historical costs. For example, if the owner of the company bought equipment that was worth $15,000, but he bought it for $10,000; he has to record it at $10,000 since that is what he paid for it.

·        Going-Concern Concept: With this concept, accountants are assuming that the business unit will be in business for a long time, at least long enough to use all their existing resources.

·        Stable-Monetary-Unit: This concept is based on the U.S. dollar. In other words, all transactions are recorded in dollars. This is because the dollar is the medium of exchange.