The Principles and Concepts of GAAP
Thank you for meeting me. I have been going over the balance sheet you made for our business. I noticed in our company Assets that are business's Car has the price of $40,000. I thought we payed $30,000.
You can't do that!!! That violates two of the concepts of GAAP
I just thought it was worth more and we could probably sell it for more if we had to.
GAAP stands for Generally Accepted Accounting Principles Let's talk about it over coffee
What is GAAP?
A few hours later...
So what Concepts of GAAP did I violate? Also why is it so bad that I violated them?
You violated the cost principle and the conservation principal. The cost principal states that assets should be their original cost price. We didn't pay $40,000 so its not worth that much. The conservation principal states the accounting of a business should be fair and resonable, what you did is not fair to the person we would end up selling it to. You wouldn't like it if someone did that to you. GAAP is traditionally something all accountants in Canada must follow. Every business should follow it. We need to respect it.
Ok, I see that now. I understand how I violated those principals and I now understand how to honour them. Thank you.
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