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The rules behind the numbers

GAAP is built from three kinds of rules. See which kind each one is.

Principles
  • Measurement (cost)
  • Revenue recognition
  • Expense recognition
  • Full disclosure
Assumptions
  • Going-concern
  • Monetary unit
  • Time period
  • Business entity
Constraints
  • Materiality
  • Benefit exceeds cost

makes one company's statements comparable to another's. In the United States, the sets it, under authority from the . Most other countries use , set by the .

The keeps FastForward's books separate from its owner's personal finances. The assumes the business will keep operating, not liquidate tomorrow.

+ Go deeper · the conceptual framework

The is the reasoning underneath GAAP — why these principles exist, not just what they say. It is what standard-setters use when a new kind of transaction does not fit an existing rule.