SOME OF THE GENERALLY ACCEPTED

ACCOUNTING PRINCIPLES [GAAP]

 Financial accounting or financial
reporting is the process of producing
information for external use (investors and
creditors) usually in the form of financial
statement.
 Financial statement reflects entity’s past
performance and current position based on set
of standards and guidelines known as GAAP
(Generally accepted accounting
principles).
BY: Abdi-Aziz Omer Dirie
 1. Economic entity assumption
The economic entity assumption is an
accounting principle that separates
the transactions carried out by the
business from its owner.
The assumption is also applicable to
businesses with different types of activities.
For example, if a company runs two
business divisions – one is a hotel chain
and the other is a restaurant chain –
separate accounts need to be maintained
for each division
 2. The monetary unit concept

• The monetary unit concept

accounting principle that assumes
business transactions or events can
be measured and expressed in terms
of Money.
• All transactions are measured in
monetary units and recorded in the
books of accounts in terms of money
 3. Time period principle
The time period principle (or time period
assumption): is an accounting principle
which states that a business should report
their financial statements appropriate to a
specific time period.
The time period assumption in
accounting allows a company's activities to
be divided into informal time periods so it
can produce financial information which
individuals can use to make decisions.
 4. Cost principle
Cost principle is the accounting practice
stating that any assets owned by a company
will be recorded at their original cost, not
their current market value.
An example of cost principle is a business
purchasing a plot of land for $40,000 in 2019
that it planned to use as a parking lot. By
2022, the plot of land is valued at $80,000.
The business would report the original cost
of $40,000 on its financial statements,
despite the asset appreciating in value.
 5. The full disclosure principle

• The full disclosure principle is a

concept that requires a business to
report all necessary information about
their financial statements and other
relevant information to any persons
who are accustomed to reading this
information.
 6. Going concern assumption
• The going concern assumption or
going concern principle is an 
accounting principle that requires
companies to be accounted for as
if they will continue operating into
the future.
 7. Matching principle
• Matching principle states
that business should match related
revenues and expenses in the
same period. They do this in order to
link the costs of an asset or revenue to
its benefits.
• It requires that any business expenses
incurred must be recorded in the same
period as related revenues.
 8. Revenue recognition
principle
• The revenue recognition principle
means that companies'
revenues are recognized
when the service or product
is considered delivered to the
customer — not when the cash
is received.
 9. Materiality principle
• The materiality principle states
that an accounting standard can
be ignored if the net impact of
doing so has such a small impact
on the financial statements that a
user of the statements would not
be misled
THANK YOU