Generally Accepted Accounting Principles

GAAP are the accounting standards. Financial statements are prepared on the basis of these principles. Here are the standards/concepts/principles given by GAAP:

1. Entity Concept

This concept simply states that the owner and each of his businesses are having a separate entity and so accountants are required to consider them separate from each other. 

2. Going-concern Concept

Accountants should assume that the business will continue their operations for the foreseeable future. Each report is made with this assumption unless stated otherwise.

3. Stable-monetary unit concept

All the information in accounting is expressed in monetary terms and it is assumed that the value of each dollar or rupee remains stable.

4. Time-period Concept

It states that the accounting information must be reported at regular intervals.

5. Conservatism Concept

Accounting information is reported in such a manner that the overstatement of revenue, assets, and owners equity or understatement of the liabilities and expense can be avoided. A company can show an average picture of the financials and make it better later instead of showing a very pretty picture and ruining it later.

6. Materiality Concept

Immaterial things can be disregarded when reporting financials of the company but if something is material and significant then it must be mentioned in the reports.

7. Reliability (Objectivity) Principle

Accounting reports must be prepared on the objective and reliable data.

8. Cost Principle

Revenues and expenses, services and assets are reported on their historical costs, i.e. the cost paid or received at the time of the activity regardless of its present value.

9. Revenue Principle

Revenue is recorded on the accrual basis, i.e. when the service or product was delivered even if cash isn't received at that moment.

10. Matching Principle

Every debit has a credit, match each expense with the related revenue.

11. Consistency Principle

Same accounting methods should be used in each period.

12. Disclosure Principle

A company has to disclose all the important information about the financial position of the company.

Alright, so here are all the GAAP principles. These are always followed by the accountants while making financial statements.