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Structure of G.A.A.P.

Certain fundamental assumptions, basic concepts or principles and conventions form the structure of generally accepted accounting principles. A convention is sometimes referred to as modifying principle. These conventions determine the rules and set the boundaries of the accounting practices. The conventions determine the manner of recording, measuring and reporting the transactions of an entity. In total they provide the essential features of the traditional accounting model i.e., Assets = Liabilities + Capital.

Fundamental Accounting Assumptions

(i)    The Business Entity Assumption.
(ii)    The Assumption of Arm’s length Transactions.
(iii)    The Money Measurement Assumptions.
(iv)    The Accounting Period Assumptions
(v)    The Going Concern Assumptions.

Basic Accounting Concepts

(i)    The Cost Concept
(ii)    The Accrual Concept
(iii)    The Realization Concept
(iv)    The Expense – Recognition Principle.
(v)    The Full Disclosure Principle

The Basic Conventions

(i)    Materiality Convention
(ii)    The Conservatism Convention
(iii)    The Consistency Convention
(iv)    The Industrial Practices.

Accounting Principles, Concepts And Conventions

Theoretically, Various terms used for ground rules for accounting such as assumptions or postulates, principles, concepts conventions etc., are one and the something but A.C. Littleton observes: “Each book usually contains a mixtures of axioms, conventions, generalization, methods, rules, postulates, practices, procedures, principles and standards. These terms cannot all be synonymous.” Such confusion may be avoided by defining the following terms: Accounting Principles are general decision rules which govern the development of accounting techniques. They are derived from the basic accounting concepts and conventions. *A Concept is a notion or general idea that finds its place in a belief about the desirability of a method or procedure. * A convention is defined as a custom or generally accepted practice based on general consent or general agreement between parties and accounting conventions are method or procedures which have been recognized as conventional or common for accounting. A convention is sometimes referred to as modifying principle. Concepts and conventions, thus, when combined become accounting principles. It will not wrong to state that generally accepted accounting principles manifest themselves through basic concepts and conventions. An assumptions or a postulate is a something that is accepted as true without proof. They are usually not specifically stated because their acceptance and use are assumed. Disclosure is necessary if they are not followed. The accounting techniques are specific rules derived from the accounting principles to account specific transactions and events faced by the accounting entity.

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