GAAP Principles, Assumptions and Considerations 1.5 CPE

This course focuses on the GAAP principles for proper preparation of financial statements. We highlight the concepts in ASC 205 regarding presentation of those financial statements.

Generally accepted accounting principles (GAAP) are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting.  The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices. 

Compliance with these GAAP principles is built on three rules that aim to eliminate misleading accounting and financial reporting practices. These rules create consistent accounting and reporting standards which provide prospective and existing investors with reliable methods of evaluating an organization’s financial standing. They include:

• The basic accounting principles, assumptions and considerations. 
  • Assumptions are considered a statement that is presumed to be true without concrete evidence to support it.  
  • Considerations are areas that govern the accountant’s ability to make decisions.
  • Principles are the rules and guidelines that companies must follow when reporting financial data.  These principles include: cost, disclosure, going concern, matching, revenue recognition, professional judgment, and conservatism
• Rules and standards issued by the FASB and its predecessor, the Accounting Principles Board (APB)
• Generally accepted industry practices

Per GAAP, companies are responsible for providing reports on their cash flows, profit-making operations and overall financial conditions. There are three major financial statements required under GAAP: 

• Income statement 
• Balance sheet 
• Cash flow statement

Presentation of the Financial Statements in accordance with GAAP is governed by Ac­count­ing Standards Cod­i­fi­ca­tion (ASC) Topic 205, Pre­sen­ta­tion of Fi­nan­cial State­ments. The Standard defines the following as a full set of financial statements:

• Financial position at the end of the period
• Earnings, which may be shown in a separate statement or within one continuous statement of comprehensive income
• Comprehensive income for the period in one statement or two consecutive statements
• Cash flows during the period
• Investments by and distributions to the owners during the period.

Note: Information within this course comes from readily available public domain documents and is utilized by the trainer as a supplement for relaying the course content.

Prerequisites

No advanced preparation or prerequisites are required for this course.

Learning Objective

• Explore the history of generally accepted accounting principles (GAAP) and recognize why the accounting and GAAP principles are of strategic importance to the accounting profession.
• Discover the GAAP assumptions, principles and considerations and their application.
• Discover the GAAP rules and standards.
• Discover how to apply GAAP principles, assumptions, and considerations to the financial statements.

Last updated/reviewed: March 5, 2024