Term Paper: Accounting Generally Accepted Accounting Principles as New

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Accounting

Generally Accepted Accounting Principles

As new types of transactions evolved in trade and commerce, accountants develop rules and procedures for recording them. These accounting rules, procedures and practices came to be known as the Generally Accepted Accounting Principles. It encompasses the conventions, rules and procedures necessary to define what are accepted accounting practice. It is conventional, that is they become generally accepted by agreement, often tacit agreement rather than derivation from a set of postulates and basic concepts. The principles have developed on the basis of experience, reason, custom, usage and practical necessity.

Historical Cost

In recognition of asset accounts in the financial statements, inherent is the Historical Cost Principle. This principle requires that assets should be recorded initially at original acquisition cost. This initial cost may be carried out without change, may be changed by depreciation, amortization or write-off, or may be shifted to other categories. This principle is applicable in cash transactions. In non-cash or an exchange transaction, the cost is equal to the fair value of the asset given or fair value of the asset received, whichever is clearly evident. In the absence of fair value, the cost is equal to the book value of the asset given.

C. Accrual Basis vs. Cash Basis Accounting

The preparation of financial statements every accounting period is usually based on accrual accounting - that income is recognized when earned regardless of when received and expense is recognized when incurred regardless of when paid. Cash basis on the other hand, recognizes income only when cash received and expenses only when cash is paid.

D. Current Assets and Liabilities vs. Non-current Items

Assets and Liabilities are classified only into two, current and non-current items. Separate classification is useful by distinguishing between assets and liabilities that are continuously used in determining working capital from those used in long-term operations. Current assets are those resources expected to be utilized for current operations and current liabilities are those expected to be paid within the operating cycle the operating period being usually one year. Assets and liabilities not within the classification of current are deemed non-current items.

Balance Sheet, Income Statement and Cash Flow Statement.

A balance sheet is a formal statement showing the… [END OF PREVIEW]

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Accounting Generally Accepted Accounting Principles as New.  (2007, May 27).  Retrieved August 22, 2019, from https://www.essaytown.com/subjects/paper/accounting-generally-accepted/4336493

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"Accounting Generally Accepted Accounting Principles as New."  Essaytown.com.  May 27, 2007.  Accessed August 22, 2019.
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