Directory of Social Science Articles e. Publications
July 2011, Vol. 1, No. 2
Generally Accepted Accounting Rules
Bilal Ahmed
bilal.mbam1@yahoo.com
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Directory of Social Science Articles e. Publications
July 2011, Vol. 1, No. 2
GAAP - Generally Accepted Accounting Rules
Definition:
Generally accepted accounting principles are those rules and standards under which
accounting transactions of a business or non business concerns are recorded.
Rules:
These are the generally accepted accounting principles (GAAP).
o Principle of Accounting Entity :
In this principle it is assumed that business is a separate entity from its
owner and other business. Revenue and expenses should not b used for
personal expenses.
o Principle of going Concern:
In this principle it is assumed that the business will be in operation
indefinitely. It is not applicable only in case of liquidation of business.
o Principle of Time Period:
In this principle it is assumed that the economic activities of business can b
divided into different time periods.
o Principle of Monetary Unit:
In this principle it is assumed that there is a suitable unit of currency to
record different transactions. USA dollar is a widely accepted monetary unit
of record.
o Principle of Regularity:
In this principle we assure that all the rules and regulations are followed
regularly through out accounting period.
o Principle of Sincerity:
According to this principle, the accounting unit should reflect in good faith
the reality of the company's financial status.
o Principle of Consistency:
This principle states that the bussiness will use a fixed method for treating
an accontinng item.
o Principle of Cost:
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Directory of Social Science Articles e. Publications
July 2011, Vol. 1, No. 2
In this principle it is required that companies account and report based on
acquisition costs rather than fair market value for most assets and liabilities.
o Principle of Revenue:
This princile requires to record revenue when it is realized , relizalbe or
erned, not when cash received.
o Principle of Disclosure:
This principle states that all information and values pertaining to the
financial position of a business must be disclosed in the records.
o Principle of Prudence:
This principle aims at showing the reality "as is": one should not try to make
things look prettier than they are. Typically, a revenue should be recorded
only when it is certain and a provision should be entered for an expense
which is probable.
o Principle of Objectivity:
This principle states that the company financial statements provided by the
accountants should be based on objective evidence.
o Principle of Meteriality:
Principle of materialty states that the the significance of an item should be
considered when it is reported.
o Principle of Matching:
This principle aims at matching the expenses with there revenues as long as
it is reseanable to do so.
o Principle of Conservativness:
This principle states that all the accounting principles should be used strictly
and consistently till the end.
o Principle of Hitorical Cost Price:
This principle states that the price of a asset should b recorded according to
its historic price not the current price.
o Principle of Realistion:
This principle of realisation concept tells that the profit must b recorded only
when it is realised and loss can b recoded when it is foreseen.
o Principle of Non-compansation:
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Directory of Social Science Articles e. Publications
July 2011, Vol. 1, No. 2
This principle says that one should show the full details of the financial
information and not seek to compensate a debt with an asset, a revenue
with an expense.
o Principle of Continuity:
This principle states that one should assume that one bussiness is started it
will not b interepted and stoped.
o Principle of Utmost Good Faith:
This principle states that all the information regarding to the firm should be
disclosed to the insurer before the insurance policy is taken.
o Principle of Dual Concept:
This principle states that evrey transaction should have dual effect of the same amount.
This is a basic accounting concept in which there are dual aspects of debit and credit.
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