Generally Accepted Accounting Principles

The Business Entity Principle

Each business is considered a separate entity. Financial data for the business is kept separate from the
owners personal financial data.
The Cost Principle
Assets are valued and recorded according to their actual cost to the business.
The Time Period Principle
Each company sets and defines an accounting period. The company consistently uses the same time
period when it prepares its financial statements.
The Matching Principle
The costs recorded in the expense accounts should be matched with the revenue of the same accounting
period to determine net income.
The Principle of Objectivity
Accounting records are based on objective evidence. ource documents provide objective evidence to
support the value used to record transactions.
The Principle of Materiality
!nformation that could affect the decisions of users of financial statements must be included when the
financial statements are prepared.
The Principle of Conservatism
"here there are acceptable alternative accounting treatments for an item# accountants choose the one that
will result in lower net income and net assets.
The Full Disclosure Principle
All information needed for a full understanding of a companys financial statements must be included
with the financial statements. $e.g. outstanding lawsuits# tax disputes# company takeovers.%
The oing Concern Concept
The business will continue to operate# unless it is known that it will not.
Generally Accepted Accounting Principles
Match the definition to the correct GAAP.
! The &atching 'rinciple
B The (usiness Entity 'rinciple
C The Time 'eriod 'rinciple
D The 'rinciple of )bjectivity
E The *oing +oncern +oncept
!B The 'rinciple of &ateriality
!C The 'rinciple of +onservatism
!D The +ost 'rinciple
!E The Full ,isclosure 'rinciple
B Each business is considered a separate entity. Financial data for the business is kept
separate from the owners personal financial data.
!D Assets are valued and recorded according to their actual cost to the business.
C Each company sets and defines an accounting period. The company consistently uses the
same time period when it prepares its financial statements.
! The costs recorded in the expense accounts should be matched with the revenue of the same
accounting period to determine net income.
D Accounting records are based on objective evidence. ource documents provide objective
evidence to support the value used to record transactions.
!B !nformation that could affect the decisions of users of financial statements must be included
when the financial statements are prepared.
!C "here there are acceptable alternative accounting treatments for an item# accountants
choose the one that will result in lower net income and net assets.
!E All information needed for a full understanding of a companys financial statements must be
included with the financial statements. $e.g. outstanding lawsuits# tax disputes# company
takeovers.%
E The business will continue to operate# unless it is known that it will not.
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Generally Accepted Accounting Principles
Match the definition to the correct GAAP.
! The &atching 'rinciple
B The (usiness Entity 'rinciple
C The Time 'eriod 'rinciple
D The 'rinciple of )bjectivity
E The *oing +oncern +oncept
!B The 'rinciple of &ateriality
!C The 'rinciple of +onservatism
!D The +ost 'rinciple
!E The Full ,isclosure 'rinciple
"""""""""
Each business is considered a separate entity. Financial data for the business is kept
separate from the owners personal financial data.
"""""""""
Assets are valued and recorded according to their actual cost to the business.
"""""""""
Each company sets and defines an accounting period. The company consistently uses the
same time period when it prepares its financial statements.
"""""""""
The costs recorded in the expense accounts should be matched with the revenue of the same
accounting period to determine net income.
"""""""""
Accounting records are based on objective evidence. ource documents provide objective
evidence to support the value used to record transactions.
"""""""""
!nformation that could affect the decisions of users of financial statements must be included
when the financial statements are prepared.
"""""""""
"here there are acceptable alternative accounting treatments for an item# accountants
choose the one that will result in lower net income and net assets.
"""""""""
All information needed for a full understanding of a companys financial statements must be
included with the financial statements. $e.g. outstanding lawsuits# tax disputes# company
takeovers.%
""""""""" The business will continue to operate# unless it is known that it will not.