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Finance & Accounting
Pages 5 (1255 words)
Generally Accepted Accounting Practice Name Professor Class University Date I. Introduction/Background Information. Generally Accepted Accounting Principles or GAAP is the collection of the commonly set of rules of accounting standards used for financial reporting.
In the United States, it is the Financial Accounting Standards Board (FASB) that sets the GAAP standards for private firms while it is the IASB sets principles for international accountants (Horngren et al, 2008). Compliance with GAAP is mandatory by every business operating in the USA. Corporations that are public companies are closely monitored by the Securities and Exchange Commission (SEC) to ensure their compliance to GAAP. II. GAAP and description of the accounting principles In the GAAP there exists accounting principles which also serves as measurements of conventions that are significant which are cost recording, revenue recognition and the matching principle. The recognition principle states that a company records revenues in its accounts only when it has earned and realized the revenue (Horngren et al, 2008 p.703). Revenues therefore cannot be recognized if it has not been earned. A second important convention is the matching principle which states that revenues must be linked to the expenses associated with them. Accountants apply the matching principle by identifying the revenue recognized during a period and by linking the expenses to the recognized revenue directly ( Horngren, 2008 p.703). The Cost Principle This GAAP accounting principle states that the recording of cost must be at their fair market price. ...
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