GAAP guidelines and their application to general accounting include the following. First, the basic GAAP guidelines encompass four assumptions. The economic entity assumption states that for the case of the accounting purposes, the company should be treated as a separate economic entity. With the monetary unit concept, the company must record transactions that are only in financial terms (Ahmed, 2008). The time period concept requires financial reports to cover a specific time. Once the company has established the time period, accountants can use GAAP to record the period the transaction occurred. The going concern concept states that the company will continue to operate indefinitely. This concept helps the accountant to classify assets and liabilities as short-term and long-term (Ahmed, 2008).
The second guideline is the full disclosure principle that requires financial statement to provide company’s information to investors, individuals, and lender so that they can assess the performance and current financial condition of the company. Third, the cost principle states that accountants should record assets at cost (Ahmed, 2008). The financial statements of the company will have records of capital assets based on the original purchase cost.
Ahmed, N. (2008). Financial accounting: A simplified approach for B. Com.(Hons), C.A., I.C.W.A. and C.S (I). New Delhi: Atlantic.
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