What is Accounting, What is GAAP, Accounting assumptions
8 important questions on What is Accounting, What is GAAP, Accounting assumptions
What are the key principles of GAAP related to relevance?
- The financial information provided must be capable of making a difference in the decisions made by users of the financial statements. If you remove your information or get it wrong it changes the whole analyses.
- Helps predict future trends or confirms past decisions; therefore impacting shareholder's actions.
What does the business entity assumption entail?
- Each business is a standalone business, not mixed up with other entities.
- Each business is reported separately from its owners and other businesses.
What does faithful representation in GAAP entail?
- Information accurately reflects the economic reality of the transactions and events.
- Ensures that the data is complete, neutral, and free from material error, thus providing a true and fair view of the company's financial performance and position.
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A software company signs a contract on January 1 to deliver a customized software package by March 31 for $15,000. The company delivers the software on May 15, and the client pays the full amount on April 1. When should the company recognize the revenue?
Why is cash considered the best asset?
What is accounts receivable?
- Money owed to your company by customers who have purchased goods or services on credit.
- Related to revenue recognition principle; you can increase revenue when you perform a service. You performed the work, but the customer has not paid you. You expect the client to pay you within one year. It's a current asset.
- AKA “Promise to pay you”
What does inventory consist of?
- Goods available for sale to customers
- Action: Buy and resell it
What are property, plant, and equipment?
- Tangible assets such as land, building, machinery and equipment used in production or operation.
- You expect to have tangible asset for several years
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