| Any business in the United States of America | | | | common and in most cases occur every day |
| whether privately held or publicly traded, has to | | | | throughout the day. These transactions can be big |
| follow the United States' version of Generally | | | | or small, made with cash or extended with credit, |
| Accepted Accounting Principles, or U.S. GAAP | | | | can consist of goods or services and are the |
| when they record transactions and are preparing | | | | backbone of most if not all business'. So |
| their financial statements to be presented to | | | | accounting for transactions automatically becomes |
| anyone who uses those particular financial | | | | a very important part of any business, which |
| statements. So it is fair to say that these | | | | makes it reasonable to make some kind of |
| principles are very important to follow no matter | | | | guideline in order to make sure that everybody's |
| what type of business or organization you are | | | | way of accounting for transactions is somewhat |
| involved with if you wish to be successful in that | | | | similar. This is where the principles for generally |
| field. It would also be fair to say that a sufficient | | | | accepted accounting come in. |
| understanding of the United States' Generally | | | | The Historical Cost Principle is a United States |
| Accepted Accounting Principles is equally important | | | | based principle and means that most assets and |
| to ensure that you do not encounter any | | | | liabilities acquired by a business are recorded at |
| problems when preparing and presenting your | | | | the acquisition price and not the Fair Market Value |
| financial statements for public and private use. | | | | (FMV). This principle has given rise to a big |
| So what are the principles that consist of the | | | | difference between U.S. GAAP and other nations |
| United States' Generally Accepted Accounting | | | | accounting standards because if the FMV of an |
| Principles, when recording a transaction? The list | | | | asset or liability were to increase or decrease in |
| consists of four main principles comprised of; the | | | | subsequent periods the asset or liability would still |
| Historical Cost Principle, the Revenue Recognition | | | | be recorded at acquisition price as opposed to |
| Principle, the Matching Principle, and the Full | | | | what its FMV actually is. However, the Financial |
| Disclosure Principle. | | | | Accounting Standards Board has begun to favor |
| Along with these four principles are four basic | | | | using fair value as opposed to Historical Cost in |
| assumptions that are present in the framework | | | | order to better record value. |
| of the U.S. Generally Accepted Accounting | | | | Another U.S. GAAP accounting principle is the |
| Principles that underlie the financial accounting | | | | Revenue Recognition Principle. This principle deals |
| make up of the United States. These four basic | | | | with determining when a company recognizes |
| assumptions are the Economic Entity Assumption, | | | | revenue. Most of the time companies recognize |
| the Going Concern Assumption, the Monetary Unit | | | | revenue when it is realized or when it is earned. |
| Assumption, and the Periodicity Assumption. The | | | | Revenue is realized when a business exchanges |
| Economic Entity Assumption assumes that a | | | | products or services for cash or credit. Revenue |
| company or business keeps its business separate | | | | is considered earned when a company performs |
| from its owners and any other business. The | | | | what it must do in order to receive the revenue. |
| second basic assumption is the Going Concern | | | | Another way to receive revenue is upon receiving |
| Assumption, which means exactly what the title | | | | cash for products or services. Overall, a company |
| says meaning that the company or business in | | | | usually accrues revenue at the date of sale but |
| question will have a long life. The third assumption | | | | there are some circumstances when it isn't (i.e. |
| is the Monetary Unit Assumption which means | | | | long-term construction contracts.) |
| that money is the common measurement item of | | | | A third U.S. GAAP principle is the Matching Principle. |
| the business and is used for accounting purposes. | | | | This is a case where a company attempts to |
| In U.S. GAAP the Monetary Unit Assumption | | | | match any revenue made with expenses that |
| implies price level changes are ignored and the U.S. | | | | were incurred to make the revenue. Common |
| dollar remains stable for the most part. The final | | | | examples of this particular principle are Cost of |
| assumption that is made is the Periodicity | | | | Goods Sold and Depreciation. While, rare this |
| Assumption, which means that a business can | | | | principle may not be followed if would be |
| divide up money making activities into equal time | | | | unreasonable to do so. |
| periods (i.e. monthly, quarterly, and yearly). The | | | | The final U.S. GAAP principle is the Full Disclosure |
| aforementioned assumptions are important to | | | | Principle. This principle provides what should and |
| mention before going into more depth about the | | | | should not be included in the financial statements. |
| four principles of accounting because if the four | | | | Usually you should take a conservative approach |
| assumptions are not met than there is no need to | | | | and include everything, but if immaterial costs or |
| apply the Generally Accepted Accounting Principles | | | | revenues exist then they should not be included in |
| because the business is already missing a major | | | | the financial statements. This principle also deals |
| piece of the accounting framework. | | | | with important information that should be included |
| Sales transactions at a business are extremely | | | | in the notes of the financial statements. |