Accounting Principles 1, 2, and 3
Point of Sale Method (POS)
Generally Accepted Accounting Principles (GAAP)
Financial Accounting Standards Board (FASB)
Basics of Accounting Principles
Basic accounting principles are generally held and regulated under Generally Accepted Accounting Principles (GAAP)
. The Financial Accounting Standards Board (FASB)
also provides rulings and general practices with regard to these accounting principles. Some of these principles of accounting also contain underlying concepts or methods that may be used as it pertains to that company's particular industry or business venture.
The Revenue Principle which is also known as the Revenue Recognition Principle contains several different methods in regards to the timing and amount that should be recorded as revenue. In accordance with this there are usually three conditions that should be met for each and every sale. First, a company must have performed a service or provided a product to expect a return from the buying party. Second, the amount of the sale should be readily measurable. Finally, there should be a reasonable amount of expectation that the company will receive payments. To insure that this happens there are currently six methods of accounting for revenue which differ according to conditions that surround the business model given as follows:
1) Sales Method
2) Completed Production Method
3) Collection Method
4) Installment Method
5) Percentage of Completion Method
6) Completed Contract Method
The matching principle is a way of setting the expenses of a company next to their respective revenues. Once one of the above revenue principle methods is used, the company then matches up the expenses that it incurred during the same period that the revenue was recognized. By doing this the company is actually establishing the income for the period revenue has been recognized.
The disclosure principle states that a company's financial statements need to and should contain enough information to outsiders so that they can make well informed decisions about a company. This was set into law under the Securities Exchange Act of 1934. In most cases this is pretty straightforward, but for some policies, issues, and uncommon transactions the way in which a company should disclose information can become unclear. The following issues cover the majority of issues and events that should be included within the financials as to avoid misleading investors.
1) Significant Accounting Policies
2) Probable Losses
3) Accounting Changes
4) Subsequent Events
5) Business Segments