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Generally Accepted Accounting Principles set of standards and rules that are recognized as a general guideline for financial reporting purposes. Conceptual Framework Serve as a basis for resolving accounting and reporting problems which include Qualitative charateristics of accounting information, elements of financial statements and operating guidelines. Objectives of Financial reporting Making investment and credit decisions, assessing future cash flows and identifying the economic resources (assets) and claims to those resources (liabilities) Four qualitative characteristics of accounting Relevance, reliability, comparability and consistency Elements of Financial statements set of definitions of the basic terms used in accounting Operating guidelines used by accountants to solve practical problems Monetary unit assumption the only data recorded is expressed in cash Economic entity assumption states that the finical records of business owner are to be kept separate Time period assumption states that the economic life of a business can be divided into artificial time periods Going concern assumption states that the enterprise will continue in operation long enough to carry out its existing objectives Revenue recognition principle dictates that revenue should be recognized in the accounting period in which it is earned Matching Principle requires that expenses be matched with revenues in the period in which effort are expended to generate revenue Full Disclosure principle Requires that circumstances and events that make a difference to financial statement users be disclosed. Cost principle assets should be recorded at their cost Materiality an item is likely to influence the decision of a reasonably prudent investor Conservatism when in doubt choose the method that will be least likely to overstate assets and income. Income statement presents the revenues and expenses and resulting net income or net loss for a specific period of time Balance Sheet reports assets, liabilities and stockholders equity at a specific date Statement of cash flow summarizes information concerning the cash inflows and outflows for a specific period of time Accounts Payable YOUR DEBT liability Accounts receivable customer's debt ASSET Expenses decrease stockholder's equity Retained Earnings Affected by revenue, dividends and expenses