The GAAPs

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The GAAPs

• No--not GAP as in clothing-- GAAP--as in
  Generally Accepted Accounting Principles

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Generally Accepted Accounting Principles

• Standards which have been established to ensure
  all individuals involved in the accounting
  profession adhere to the same guidelines and
  standards.
• Generally, there are 11 GAAPs which cover
  accounting guidelines for reporting, measuring
  and recording financial information.
• They were established in the 1930s.
• They are available in the CICA Handbook.
  (Canadian Institute of Chartered Accountants)

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1. Business Entity

• The records for a business are kept separate from
  the owners personal assets and personal
  transactions.

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2. Going Concern

• When preparing financial statements for a
  business, it is assumed that the business will
  remain in operation indefinitely.

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3. Accounting Period Cycle

• Financial statements and information are prepared
  and presented for a specific period of time
• For example, one month or one year.

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4. Historical Cost

• The actual amount paid or received for a good or
  for a service is the amount recorded in financial
  statements.

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5. Adequate Disclosure

• When financial statements are prepared, all
  necessary information should be included.
• It is critical in order for the reader to get a
  true and accurate picture of the financial
  standing of the business.

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6. Consistent Reporting

• The same accounting principles and procedures
  must be used from one accounting period to the
  next.

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7. Matching Expenses With Revenue

• Revenue received and the expenses incurred in
  receiving that revenue need to be recorded in the
  same accounting period.

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8. Materiality

• Dollar amounts for various items should be judged
  as to whether it is material enough to have a
  separate account or combined into a general
  account such as Miscellaneous Expense.

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9. Objective Evidence

• Every business transaction requires evidence to
  support it.

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10. Realization of Revenue

• Revenue from all business transactions will be
  recorded at the time the service or good is sold.

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11. Unit of Measurement

• A common unit of measurement needs to be
  established -- For example in Canada, that unit
  is usually the dollar.

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The End