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=// **Generally Accepted Accounting Principles** //= Basic accounting principle under which a business or organization is deemed as an entity in its own regard, separate from its stockholders, managers, or proprietor. EX: Mr. X has 3 rooms in a house he has rented for $3,000 per month. He has set up a single-member accounting practice and uses one room for purpose. Under the business entity concept only 1/3 of the rent or $1000 should be charged to the business because the other two rooms or $2000 worth of rent are expended for personal purposes.
 * __Business Entity Concept__-** Clint Nievinski Jared Kroll

__**Going Concern Concept**__ ~applied to accounting when financial statements are prepared with the assumption that the business will run indefinitely (forever) Example: if Joe opens a business, the business is expected to last forever. When the Joe wants to retire, he will have to sell the business to keep it running. Sam Brown and Shae Ganser The biggest example of this is depreciation! Equipment is depreciated over its useful life with the expectation that it will run out of usefulness before the business. -Mrs. B.

__**Unit of Measurement Concept**__ --Josh Busko & AJ Gulan
 * Two Parts:**
 * The purchasing power of the dollar doesn’t change, i.e. it is stable.....In other words, accountants ignore inflation. Example: By this concept, accountants ignore the change in price of a piece of land due to inflation.
 * The balance sheet, income statement, statement of cash flows and other financial statements are mostly shown in terms of a monetary like the dollar.

--Jordan Matis & Jared Sprink There is a certain time period that businesses prepare financial statements. An accounting periord may be a month, 3 months, 6 months or year. Most businesses choose a year because of taxes.- Mrs. B
 * __Time-Period Concept or Accounting Period Cycle__** Used to estimate accounting information without the use of financial statements for the whole year. This concept allows you to estimate how much money has passed through the business in a certain time period. **Example:** if you were to start the pay period on January 1, 2012 and end in August, the income statement would cover the eight months ended August 31, 2012.

__**Historical Cost Principle**__ The accounting concept //Historical Cost// is applied when the actual amount paid for merchandise or other items bought is recorded. Only the invoice amount is used in a journal entry. No journal entry is made to show the amount of trade discount. The original price of all merchandise sold during a fiscal period. Cost of merchandise sold is also known as cost of goods sold or cost of sales. The amount paid for plant asset is debited to a plant asset account with a title such Store Equipment. Definition: A measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company. The historical-cost method is used for assets in the U.S. under generally accepted accounting principals (GAAP). --Sarah Vils & Olivia Schmitt

__**Revenue Recognition Principle**__ Revenue recognition principle tells that revenue is to be recognized only when the rewards and benefits associated with the items sold or service provided is transferred, where the amount can be estimated reliability and when the amount is recoverable.Examples
 * 1) A telecommunication company sells talk time through scratch cards. No revenue is recognized when the scratch card is sold, but it is recognized when the subscriber makes a call and consumes the talk time.
 * 2) A monthly magazine receives 1,000 subscriptions of $240 to be paid at the beginning of the year. Each month it recognizes revenue worth $20,000 [($240 ÷ 12) × 1,000].
 * 3) A media company recognizes revenue when the ads are aired even if the payment is not received or where payment is received in advance. (Amber & Dany)

__**Matching Expenses with Revenue Principle**__ Kim Kaiser & Katie Ivaska :)
 * Defenition:** The principle that requires a company to match expenses with related revenues in order to report a company's profitablilty during specified time intervals. It is based on a cause and effect relationship.
 * Example:** For example, sales commissions expense should be reported in the period when the sales were made (and not reported in the period when the commissions were paid). Wages to employees are reported as an expense in the week when the employees worked and not in the week when the employees are paid.

__**Faithful Representation Principle**__ Means that numbers and descriptions match what really existed or happened - it is factual. Information must be complete, neutral, and free from error. Financial information that is free from error will be a more faithful representation of financial performance. For example, if General Motors' income statement reports sales of $225 billion when it had sales of $193.5 billion, then the statement is not a faithful representation. (Leah N & Nikki K)

__**Adequate Disclosure Principle**__ Financial statements contain all information necessary to understand a business' financial condition. Example: If a business states on a balance sheet that it has $200,000 in liabilities, but does not separate them into current and long term liabilities, they may not know that $150,000 of that is current liabilities due in a few months. An owner may not have all the information necessary needed to make a decision about a purchase going forward.

__**Consistent Reporting**__ The same acounting procedures must be followed in the same way in each accounting period. Example: If a business records $120,000 in expenses one accounting period and $60,000 in expenses and $60,000 in cost of goods sold the next accounting period, they can not be compared.

A source document is prepared for each transaction. Example: A sales invoice can be recalled when there is a question regarding the terms and amount due. Receipts are used for proof of sale.
 * __Objective Evidence__**

__**Materiality**__ Business activities creating dollar amounts large enough to affect business decisions should be recorded and reported as separate items in accounting items in accounting records and financial statements. Example: Modems and and print motors used to manufacture fax machines are considered direct materials and accounted for separately. Connectors and gears used are a small enough dollar amount that they are grouped together and recordeds as an indirect material.