Information disclosed should be enough to make a judgment while keeping costs reasonable. 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. This principle allows greater evaluation of actual profitability and performance (shows how much was spent to earn revenue). office salaries and other administrative expenses). Only if no connection with revenue can be established, cost may be charged as expenses to the current period (e.g. Expenses are recognized not when the work is performed, or when a product is produced, but when the work has been done or the product has been delivered. Expenses have to be matched with revenues as long as it is reasonable to do so. If a company or business believes that they may not receive payment for services or goods rendered, they may not record related revenue. This is the essence of accrual basis accounting. It does not matter if cash has been received or paid. Revenue recognition principle holds that companies may not record revenue until (1) it is realized or realizable and (2) when it is earned.Most debts and securities are now reported at market values. Thus there is a trend to use fair values. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Historical cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities.To achieve basic objectives and implement fundamental qualities GAAP has four basic principles, and four basic constraints. FASB issues the final statement of principle, all principles are modified and refined as accountants respond to constantly changing business environment.FASB obtains responses to the exposure draft from Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), the American Accounting Association (AAA), public accounting firms, and other involved parties.FASB collects all responses and suggestions from Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), the American Accounting Association (AAA), public accounting firms, and other involved parties.FASB members issue a discussion memorandum,.The Financial Accounting Standards Board (FASB) develops the Generally Accepted Accounting Principles (GAAP). These generally accepted accounting principles for businesses or governmental organizations have developed through accounting practice or been established by an authoritative organization.
To facilitate comparisons between companies, this information must conform to certain accounting standards or principles called generally accepted accounting principles (GAAP). Financial accounting information is historical in nature, reporting on what has happened in the past.