Business Tools for Career Readiness

Finance for
Non-Financial Professionals
Module 1

with David Standen, D.B.A.

Generally Accepted Accounting

Principles (GAAP)
Historical Cost Principle
Revenue Recognition Principle
Matching Principle
Full Disclosure
Materiality Principle
Consistency Principle
Conservatism Principle

Historical Cost Principle

Requires companies to account and report
based on acquisition costs rather than fair
market value for most assets and liabilities.

Revenue Recognition Principle

Companies must record revenue when it is
earned.
The flow of cash does not have any bearing on
the recognition of revenue.
This is the essence of accrual basis
accounting.

Conversely, losses must be recognized when

their occurrence becomes probable, whether or
not it has actually occurred.

Matching principle
Expenses have to be matched with revenues
Expenses are recognized when the work or the
product actually makes its contribution to
revenue.
Depreciation and Cost of Goods Sold are good
examples of application of this principle.

Full disclosure principle

Amount and kinds of information disclosed should
be decided based on trade-off analysis as a larger
amount of information costs more to prepare and
use.

Materiality principle
The significance of an item should be considered
when it is reported.

Consistency principle
A company must use the same accounting
principles and methods from period to period.

Inventory Valuation
FIFO = First in First Out
LIFO = Last in First Out
Average Cost

Conservatism principle
When choosing between two solutions, the one
which has the less favorable outcome is the
solution which should be chosen.

Up next
Costing Methods