GAAP 2

GAAP 2
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  • Cost
  • -Match expenses with revenue in period where effort was made to generate revenue - Expenses aren't always recognized when cash is paid, when work is done or when product is produced
  • Matching
  • Matching says to let the expenses follow the revenue, meaning expenses should be recognized when it actually contributes to earning revenue
  • Full Disclosure
  • Let's move on to the principle of Full Disclosure
  • Full Disclosure
  • - Inform investors and lenders of the financial health of the company  - Certain pieces of key information should be disclosed in the financial statement or in footnotes
  • Full Disclosure is the principle that states that all events, circumstances and information should be transparent to the user of the financial statement
  • Lastly, we'll discuss the cost principle 
  • Cost
  • - Cost is used because it is reliable and relevant 
  • The cost principle states that assets should be recorded at their historical cost. So if an assets was purchased at $100, but is now worth $150, it should still be recorded at the value of when it was purchased, which is $100
  • Those are the four principles, next we'll discuss assumptions, constraints and qualitative characteristics
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