Generally Accepted Accounting Principles (GAAP)

1. 2H2 Generally Accepted Accounting Principles Prepared by: Armocilla Lugay Escarilla Madrigal Ramos Tobias Ms. Lolita Pujol

2. Generally Accepted Accounting Principle (GAAP) Rules that govern how accountants measure, process and communicate financial information Ensures that consistent accounting procedures are followed in recording the events created by business transactions and in preparing financial statements

3. Generally Accepted Accounting Principle (GAAP) The Business Entity Concept The Continuing Concern Concept The Time Period Concept The Consistency Principle The Principle of Conservatism The Objectivity Principle The Materiality Principle The Monetary-unit Concept The Full Disclosure Principle The Cost Principle The Revenue Recognition Convention The Matching Principle

4. The Business Entity Concept From an accounting standpoint, the business firm is treated as a separate economic entity Only the business entity’s activities and transactions should be recorded and reported The personal activities of the owner(s) and other business entities are accounted for separately, unless the activities have direct impact upon the business firm

5. The Continuing Concern Concept Recognizes that a firm will remain in operation for the foreseeable future The firm is expected to continue to operate long enough to meet its obligations and fulfill its plans

6. The Time Period Concept Recognizes that timely financial reports must be made to those who need the information in these reports Can be monthly, quarterly or annually The year is the basic time unit

7. The Consistency Principle States that once an accounting method has been adopted, it should be consistently followed from period to period in order for accounting information to be comparable

8. The Principle of Conservatism Holds that when equally correct accounting alternatives are available for recording or reporting a transaction, the accountant should select the alternative that will result in least favorable outcome for the business in the current period Minimize any overstatement of assets and income and understatement of liabilities

9. The Objectivity Principle States that all business transactions must be supported by objective evidence proving that the transaction did in fact occur When independent evidence is not available to document the results of a business transaction, estimates must be made

10. The Materiality Principle States that material events must be accounted for according to accounting rules

11. The Monetary-unit Concept Holds that business transactions must be recorded and reported in terms of money Peso is the monetary unit in the Philippines

12. The Full Disclosure Principle Requires that the financial statements of a business should be complete and should report sufficient economic information relating to the business entity to make the statements understandable Information may be: financial statements or supplementary attachments

13. The Cost Principle Holds that most assets and liabilities are recorded at their transaction cost Provides an objective and verifiable basis for the initial recording of assets and liabilities

14. The Revenue Recognition Convention States that revenue resulting from business transactions should be recorded only when a sale has been made or earned

15. The Matching Principle Requires that the entity’s operational efforts (expenses) be matched to the entity’s operational accomplishments (revenues) States that all expenses must be recorded in the accounting period as the revenue which they helped to generate

16. The Matching Principle 2 Accounting Methods for determining where to record the result of a business transaction: Cash Accounting Records the result of business transactions only when cash is received or paid out Accrual Accounting Adjusts the accounting records by recording expenses which re incurred during an accounting period but which are not actually paid until the following period; already earned but not yet collected

17. Reference/s Accounting for Hotels and Restaurants: A User Perspective (2007) by Ma. ElenitaBalatbat Cabrera, pages 50-54