I. Define:
Historical cost principle – GAAP mandates that companies will record assets and liabilities at the acquisitions price. Unlike other methods this is the only method that is very verifiable.
Going concern assumption- The assumption that a business has a long life span, it is important assumption as it crucial for both investors and lenders to review the company’s long-term assets and long-term liabilities. It is also very important from the depreciation aspects of assets and liabilities.
Matching principle- Revenues and expenses are reported at the same accounting period.
Monetary unit- Money is the best and most use denominator of economic activity, it is easy to understand and relevant to most if not all professionals and investors.
Revenue recognition principle- this principle deals with the time period for the revenue recording, under the accrual basis of accounting revenue should be recorded whenever the organization completed the task needed for generating the revenue, under the cash basis revenue recognition accrues whenever payment received.
Full disclosure principle- The full disclosure principle is the principle that suggests that companies must provide sufficient financial information to influence the judgment and decision of the end user. Financial information is available in the notes of the financial statements as well to the financial reports.
Reliability characteristic- Financial reports and information must be in a form of verifiable, reliable, accurate, free of errors and unbiased. Since the end users relays on the information given in the financial report the reporter (the company) must be able to presents prove if needed to the information presented in the reports.
Cost-benefit relationship- The idea of maintaining a dept. within a business that is not profitable to the business, nor generating revenue or