Project #82982 - GAAP

The Week 3 Forum consists of one question. The question needs to be answered with an initial post of at least 250 words (e.g. you will have one initial post).   

List and briefly describe the five major generally accepted accounting principles (GAAP) that accountants must consider when presenting financial accounting information.

 

Instructions: Your initial response should be no less than 250 words with at least one scholarly journal reference (dictionary-type websites are excluded). Reply to at least two of your classmates.  Replies to classmates should be a minimum of 100 words and include direct questions. In-text citations and references must be in APA format. 
 
Initial Post Due: Wednesday by 11:55 pm ET
Replies to Classmates Due: Sunday by 11:55 pm ET

 

Make sure you are using credible sources in your discussions and assignments. Scholarly journals are the preferred source of credible/quality references. These consist of peer-reviewed articles published in academic journals related to the field, which are found via our Library.  Websites such as Investopedia, ask.com, answers.com, or dictionary-type of websites limit the insight to the topics. Wikipedia is not acceptable as it is not a reliable, credible source of reference. The purpose is to bring in new information and how does it apply to our topic from a real-world perspective, instead of extending on definitions that are found in the book.
 
More information what a credible source consists of can be found here:  http://writingcommons.org/evidence/supporting-sources/630-what-might-be-a-more-credible-reliable-source. 
 

 

PLEASE WRITE A RESPONSE TO THE CLASSMATE'S WORK BELOW:

 

There are five main principles that accountants must consider. I think the easiest one to understand and follow would be the full disclosure principle, though I could see advantages of the others depending on which type of business one is running.  

“Exchange-price (or cost) principle - requires an accountant to record transfers of resources at prices agreed on by the parties to the exchange at the time of exchange. This principle sets forth (1) what goes into the accounting system—transaction data; (2) when it is recorded—at the time of exchange; and (3) the amounts—exchange prices—at which assets, liabilities, stockholders' equity, revenues, and expenses are recorded.

Revenue recognition principle - dictates that purchased or self-constructed assets are initially recorded at historical cost. Historical cost is the amount paid, or the fair market value of the liability incurred or other resources surrendered, to acquire an asset and place it in a condition and position for its intended use.

Matching principle - states that expenses should be recognized (recorded) as they are incurred to produce revenues. An expense is the outflow or using up of assets in the generation of revenue. Firms voluntarily incur expense to produce revenue.

Gain and loss recognition principle - states that we record gains only when realized, but losses when they first become evident. Thus, we recognize losses at an earlier point than gains. This principle is related to the conservatism concept.

Full disclosure principle - states that information important enough to influence the decisions of an informed user of the financial statements should be disclosed. Depending on its nature, companies should disclose this information either in the financial statements, in notes to the financial statements, or in supplemental statements. In judging whether or not to disclose information, it is better to err on the side of too much disclosure rather than too little.”

References:

Hermanson, Roger, H., Edwards, James, D., and Maher, Michael, W.; (2011) Accounting Principles: A Business Perspective, Financial Accounting. , 8th Edition. Textbook Equity, Inc.

Subject Business
Due By (Pacific Time) 09/23/2015 10:00 pm
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