Finance for Non-Financial Professionals
Business Tools for Career Readiness
Finance for Non-Financial Professionals Module 1
with David Standen, D.B.A.
Generally Accepted Accounting Principles (GAAP) • Historical Cost Principle • Revenue Recognition Principle • Matching Principle • Full Disclosure • Materiality Principle • Consistency Principle • Conservatism Principle
Historical Cost Principle Requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities.
Revenue Recognition Principle • Companies must record revenue when it is earned. • The flow of cash does not have any bearing on the recognition of revenue. • This is the essence of accrual basis accounting.
• Conversely, losses must be recognized when their occurrence becomes probable, whether or not it has actually occurred.
Matching principle • Expenses have to be matched with revenues • Expenses are recognized when the work or the product actually makes its contribution to revenue. • Depreciation and Cost of Goods Sold are good examples of application of this principle.
Full disclosure principle Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use.
Materiality principle The significance of an item should be considered when it is reported.
Consistency principle A company must use the same accounting principles and methods from period to period.
Inventory Valuation • FIFO = First in First Out • LIFO = Last in First Out • Average Cost
Conservatism principle When choosing between two solutions, the one which has the less favorable outcome is the solution which should be chosen.
Up next Costing Methods
Finance for Non-Financial Professionals Module 1
with David Standen, D.B.A.
Generally Accepted Accounting Principles (GAAP) • Historical Cost Principle • Revenue Recognition Principle • Matching Principle • Full Disclosure • Materiality Principle • Consistency Principle • Conservatism Principle
Historical Cost Principle Requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities.
Revenue Recognition Principle • Companies must record revenue when it is earned. • The flow of cash does not have any bearing on the recognition of revenue. • This is the essence of accrual basis accounting.
• Conversely, losses must be recognized when their occurrence becomes probable, whether or not it has actually occurred.
Matching principle • Expenses have to be matched with revenues • Expenses are recognized when the work or the product actually makes its contribution to revenue. • Depreciation and Cost of Goods Sold are good examples of application of this principle.
Full disclosure principle Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use.
Materiality principle The significance of an item should be considered when it is reported.
Consistency principle A company must use the same accounting principles and methods from period to period.
Inventory Valuation • FIFO = First in First Out • LIFO = Last in First Out • Average Cost
Conservatism principle When choosing between two solutions, the one which has the less favorable outcome is the solution which should be chosen.
Up next Costing Methods
