The Key Principles of GAAP or Basic Accounting Principles

Accounting

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1ST DECEMBER,2022

There are general concepts that lay out the main mission of GAAP.
1. Principle of Regularity:- The accountant has adhered to GAAP rules and regulations as a standard.
2. Principle of Consistency:- Accountants commit to applying the same standards throughout the reporting process, from one period to the next, to ensure financial comparability between periods. Accountants are expected to fully disclose and explain the reasons behind any changed or updated standards in the footnotes to the financial statements.
3. Principle of Sincerity:- The accountant strives to provide an accurate and impartial depiction of a company’s financial situation.
4. Principle of Permanence of Methods:- The procedures used in financial reporting should be consistent, allowing a comparison of the company's financial information.
5. Principle of Non-Compensation:- Both negatives and positives should be reported with full transparency and without the expectation of debt compensation.
6. Principle of Prudence:- This refers to emphasizing fact-based financial data representation that is not clouded by speculation.
7. Principle of Continuity:- While valuing assets, it should be assumed the business will continue to operate.
8. Principle of Periodicity:- Entries should be distributed across the appropriate periods of time. For example, revenue should be reported in its relevant accounting period.
9. Principle of Materiality:- Accountants must strive to fully disclose all financial data and accounting information in financial reports.
10. Principle of Utmost Good Faith:- Derived from the Latin phrase uberrimae fidei used within the insurance industry. It presupposes that parties remain honest in all transactions.
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