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1、Unit Two,GAAP Generally Accepted Accounting Principle (FASB develop it),Learning Objectives,Understand the definition, terms, characteristic, difficulties of each accounting conventions.( if they have),一 Accounting Entity convention,1 Definition: the smallest unit of activity with a self-contained a
2、ccounting system. 2 Characteristic: each accounting entity interprets transactions from its own viewpoint. 3 In other words, the business is viewed as an entity separate from its owners, creditors, or other stakeholders.,二 Going-concern convention (continuity convention),1 Definition: the entity wil
3、l remain in operation for the foreseeable future. 2 the assumption of continuity is made in the absence of evidence to the contrary.,三 Monetary convention,1 Definition: an entitys transactions are recorded in the monetary unit of the country in which it is operating. (economic data be recorded in do
4、llars) 2 Financial statements are presented in the currency of the country where the reports are published,四 Accounting period convention (Time-period),measure the result of an entitys operation over a relatively short period and to present a Balance Sheet at frequent intervals.,五 Objectivity conven
5、tion,the accounting records and reports be base upon objectivity evidence.,六 Relevance,if accounting information is to be of any use, it must be relevant for its intended use.,七 Reliability,1 Truthfulness (validity) 2 Verifiability 3 Neutrality,八 Understandability 九 Comparability,1 Consistency: impl
6、ies that the accounting procedures for a particular type of transaction are the same from one period to the next. 2 Uniformity requires that companies in the same industry use the same accounting policies and procedures.,十 Conservatism convention,accountants act conservatively or prudently in the me
7、asurement of profit. (reasonable pessimism) Revenue: certain Expense: probable Assets: lowest Liabilities: highest,十一 Materiality convention,1 Definition: record and report separately only those transactions which are material. 2 Attention: material means important enough to influence the decisions
8、of statement users. Large/ small/ differ significantly/ nature,十二 Substance over form,This principle requires that transactions and other events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form.,十三 Cost convention,1 Definition: e
9、nter the exchange price into the accounting records. 2 The cost principle provides guidance primarily at the initial acquisition date.,十四 Matching principle,1 Definition: all expenses incurred in earning revenue should be recognized in the same period the revenue is recognized. 2 As a result, most m
10、atching is not directly to revenue, but is instead to time periods.,十五 Accrual basis of accounting Cash basis of accounting,Financial effects of transactions and economic events are recognized by the enterprise when they occur, rather than when the actual cash is received or paid by the enterprise.,十六 Capital expenditure Revenue expenditure,Capital expenditure: (material) are the expenditures expected to yield benefits beyond the current accounting period. Revenue expenditure: (not material) are the expenditures only in the current period.,
