Summary of Qualitative Characteristics of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

• Part 11.1 - Summary of Qualitative Characteristics of GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
• Part 11.2 - How and When to Recognize Revenues & Expenses in Accrual Accounting
• Part 11.3 - Functions in the Purchasing Process and how to Segregate Purchasing Duties
• Part 11.4 - Three Steps to Determining and Applying Materiality
• Part 11.5 - Assertions of Management about Economic Events in the Business
• Part 11.6 - Bank Accounting - Types of Bank Accounts, Cash Receipts & Disbursements, Disclosures Required for Cash Accounting
• Part 11.7 - Objectives of Internal Controls set by Management
• Part 11.8 - How to Test Internal Controls of an Organization
• Part 11.9 - Positive Accounting Theory (PAT)
• Part 11.11 - Accounting Information - Complex Commodity & Information Asymmetry

Understandability

• a basic level of understandability is assumed to assist both the preparer and users of financial information

Relevance

• if information has the ability to make a difference in a decision scenario, it is relevant
- predictive value:-

Help prevent financial impact of past, present and future event.

- Feedback value

Helps confirm or correct minor expectations

Reliability

• information is reliable if it can be depended upon
- verifiable
- representational faithfulness
- neutral
- conservative

Comparability

• when different firms use the same accounting principles

Consistency

• when firms use the same account principles and methods from year to year

Economic (Business) Entity Concept

• personal transactions of owners/shareholders recorded separately from business entity's transactions
• economic entity not necessarily legal entity

Objectivity (Reliability)

• accounting information must be capable of third party verification
• free from bias
• supported by evidence (source documents)

Historical Cost (Cost Principle)

• assets and services acquired are recorded at original cost, and not subsequently changed to market/appraised value (value upwards).

Going Concern Assumption

• assumes a business will continue as a viable operations indefinitely
• financial statements are prepared on assumptions that company will expect in the foreseeable future.

Monetary Unit Principle

• monetary unit is stable; transaction is as recorded, not adjusted for inflation.

Time Period (Periodicity)

• life of a business entity can be broken up into distinctive periods (years, months, quarters) and report financial performance by period

Matching Principles

• expenses are incurred to generate revenue and these expenses must be matched with the revenue earned in the same period.

Revenue Realization (Revenue Recognition) Principle

• revenue is recognized as earned when a product sold or a service is provided
• Not contingent on when cash is received.

Full Disclosure Principles

• all relevant facts useful to interpreting financial statements must be disclosed (either in notes or body of statement).

Consistency Principle

• accounting practices and methods should be consistent from year to year
• this assists in making comparisons, trend analysis, and forecasts
• if change is necessary, the impact of the change must be shown on all statement.

Conservatism

• when two or more accounting alternatives are equally acceptable, the one with the least favorable impact on assets and income is chosen.

Materiality

• involves professional judgment
• refers to the significance of an omission
• if not significant, no adjustment required
• if you mess out, it's not material

Benefit/Cost Relationships

• cost must be compared to benefits to determine desirability of producing information
• easier to quantify costs vs benefit.

Unit of Measure

• All information is expressed in $ (or medium of exchange).