BOS Accounting is GAAP Compliant
GAAP (pronounced GAP) stands for Generally Accepted Accounting Principles. It is a group of commonly-used accounting standards and principles that are used for financial reporting. These work to improve transparency and consistency in financial statements from one organisation to the next, and is specific to country and industry.
Is QuickEasy BOS GAAP Compliant?
Yes, BOS is GAAP compliant, in that it provides financial statements and accounting reports based on generally accepted accounting principles.
When a company issues and distributes their financial statements to the public, showing revenue recognition, balance sheet item classification and outstanding share measurements, GAAP must be followed.
If a company uses GAAP and non-GAAP standards, they need to identify the non-GAAP measures in financial statements and other public disclosures, such as press releases.
What are the GAAP Principles?
The Business Entity Concept
This principles means that the accounting for a business is kept separately from the personal financials of its owner, or from any other business or organisation.
This means that none of the owner's personal assets are listed on the business balance sheet. The balance sheet of the business should only reflect the financial position of the business.
Also, whatever expenses the owner might have that are of a personal nature are not to be listed against the business's expenses.
The Continuing Concern Concept
This principle assumes that a business will continue to operate and the value of the assets will reflect that.
However, if it is known that the business is going out of business, the values of the assets will decline because they have to be sold under unfavourable circumstances. The values of such assets often cannot be determined until they are actually sold.
The Principle of Conservatism
This principle implies that the accountant's evaluations and estimates during business affairs are fair and reasonable. They should neither overstate nor understate the affairs of the business or the results of operation.
The Objectivity Principle
Objective records mean that when different people look at the evidence they will arrive at the same values for the transaction.
The source document for a transaction is usually the best objective evidence and shows the amount agreed to by the buyer and the seller, who are usually independent and unrelated to each other.
The Time Period Concept
This principle maintains that accounting takes place over specific time periods. These are known as fiscal periods. These fiscal periods are of equal length, and are used when measuring the financial progress of a business.
The Revenue Recognition Convention
This principles provides that revenue be recognised at the time the transaction is completed. If it is a cash transaction, the income is recorded when the sale is completed and the cash received.
It is important to take revenue into the accounts properly. If this is not done, the earnings statements of the company will be incorrect and the readers of the financial statement misinformed.
The Matching Principle
This is an extension of the revenue recognition convention stated above. This principle states that each expense item (cost of sales) related to income generated must be recorded in the same accounting period as the revenue it helped to earn. This is to measure the results of operations fairly on the income statement.
The Cost Principle
This principle holds that value recorded in the accounts for an asset is not changed until later if the market value of the asset changes. To change the original value of an asset would take an entirely new transaction based on new objective evidence.
If objective evidence is not available, the transaction would be recorded at fair market value which must be determined by some independent means.
The Consistency Principle
This principle requires accountants to be consistent when applying the methods and procedures from period to period. If they change a method from one period to another, they should explain the change clearly on the financial statements. If there is no statement of change in financial statements, the readers can assume that consistency has been applied.
This prevents people from changing methods for the sole purpose of manipulating figures on the financial statements.
The Materiality Principle
This principles means that accountants use generally accepted accounting principles, except when doing so would be expensive or difficult, and where ignoring the rules will make no real difference. If a rule is temporarily ignored, the net income of the company must not be significantly affected, nor should the reader's ability to judge the financial statements be reduced.
The Full Disclosure Principle
This principle means that any and all information that affects the full understanding of a company's financial statements must be include with the financial statements.
If some items do not affect the ledger accounts directly, they can be included as accompanying notes.