Accounting principles | business valuation | topics | career center | dictionary | accounting Q & A | quizzes | about us

Browse Accounting Lessons Here

Accounting Terms & Definitions
Accounting for Merchandising Activities
Debits and Credits (Double Entry Accounting)
Business Valuation Formulas
Time Value of Money & Present/Future Values
Complex Debt & Equity Instruments
Common Stock & Shareholder's Equity
Accounting & Finance Ratios
Valuing Common Stock
Corporate Income Taxes
Lower of Cost or Market (LCM) & Inventory Valuation
Chart of Accounts & Bookkeeping
Bonds Payable & Long Term Liabilities
Capital Assets
GAAP, Accrual & Cash Accounting, Information Commodity, Internal Controls & Materiality

What category of browser are you on this website?

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


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


• 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


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


• when different firms use the same accounting principles


• 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.


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


• 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).

© Accounting Scholar | Privacy Policy & Disclaimer | Contact Us