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