What you’ll learn to do: Identify fundamental concepts of Generally Accepted Accounting Principles
The objectives of financial reporting, as discussed in the FASB Statement of Financial Accounting Concepts No. 1, are to provide information that:
- Is useful to existing and potential investors and creditors and other users in making rational investment, credit, and similar decisions;
- Helps existing and potential investors and creditors and other users to assess the amounts, timing, and uncertainty of prospective net cash inflows to the enterprise; and
- Identifies the economic resources of an enterprise, the claims to those resources, and the effects that transactions, events, and circumstances have on those resources.
In order to provide the best information possible in light of those objectives, GAAP embodies the following high-level guidance:
- Historical cost principles and the monetary unit assumption
- Economic entity and going concern assumptions
- Principle of full disclosure
- And the following additional principles:
- Relevance
- Reliability
- Consistency
- Conservatism
- Materiality
