Assignment # 1 Topic :

GAAP
Submitted to:

Sir.Syed Atif Ali

Submitted by: JAWAD MASOOD Registration no: ME-307-014

(Evening)

GAAP
Generally Accepted Accounting Principles (GAAP)
Generally accepted accounting principles (GAAP) are varied but based on a few basic principles that must be upheld by all GAAP rules. These principles include consistency, relevance, reliability, and comparability.

Business Entity Concept :

This provides that the accounting for a business or organization must be kept separate form the personal affairs of the owner, or from any other business or organization. In short, this means that the balance sheet of the business must reflect the financial position of that business alone. No personal assets or other accounts outside the company can be added. Also, when doing accounting, all personal expenses, or transactions for other companies must be charged to that party, not the business.
Example: If A owns a property of Rs.5 lakhs, out of which he invests Rs.2 lakhs in business then Rs.3 lakhs will be his personal property and 2 lakhs will be his business investment

Going Concern Principle:

This principle assumes that a company will continue in business into the future. Without this assumption most of the accounting information could not be presented in the financial statements ince we are always making assumptions (e.g., what is the life of a Long-Term Asset). The only way to make this assumption is to further assume that the business will be in existence into the indefinite future.

Historical Cost Principle:

According to this rule, most Assets and Liabilities should be represented on the Balance Sheet at the amount that was paid to acquire the Asset, or for the Liabilities, at the amount that was contracted to be paid in the future. No account is taken for either inflation or changing value of Assets over time.

Materiality Principle:
This principle states that an item should only be included on the Balance Sheet if it would change any decisions of a statement user. If, for example, a multimillion-dollar corporation were to donate $100 to a charity, this information would not change any decision that management or an owner would make. However, since corporate money was spent, this distribution of the $100 must be combined with other small expenditures and reported as a miscellaneous Expense.

The Objectivity Principle

This states that accounting will be recorded on the basis of objective evidence. According to this GAAP, anybody looking at the evidence of a transaction should be able to come to the same values. Source documents are almost always the best objective evidence to use to prove a transaction happened. Example 1: For the purchase of a new desk, the bill is received from the retailer. This source document shows the amount of the transaction and the accounting apartment can process the transaction.

The primary standard-setting bodies responsible for establishing GAAP are the: FASB: Financial Accounting Standards Board SEC: Securities and Exchange Commission IASB: International Accounting Standards Board AICPA: American Institute of Certified Public Accountants