BASIC ACCOUNTING REVIEW

I-Generally Accepted Accounting Principles (GAAP):

• Unit of Measurement: Companies operating in a specific country shall use that country's local currency as a unit of measurement.
• Historical Cost: The principle of historical cost states that the value of merchandise or services obtained through business transactions should be recorded in terms of actual costs, not current market values.
• Going Concern: The principle of going concern (also known as continuity of the business unit) requires financial statement to be prepared under the assumption that the business will continue indefinitely and thus carry out its commitments. Normally, a business is assumed to be a going concern unless there is objective evidence to the contrary.
• Conservatism: The principle of conservatism guides the decisions of accountants in areas that involve estimates and other areas that may call for professional judgement. Therefore, the principle of conservatism provides accountants with a practical alternative for situations that involve doubt. In these very situations, the solution or method shall be the one that does not overstate assets or income.
• Objectivity: This very principle states that all business transactions must be supported by objective evidence proving that the transactions did in fact occur.
• Realization: Under the realization principle, revenues resulting from business transactions are recorded only when a sale has been made and earned, when a hotel receives cash from a guest served in the dining room, for example.
• Matching: The matching principle states that all expenses must be recorded in the same accounting period as the revenue that they helped to generate. When expenses are matched with the revenue they helped to produce, external and internal users of financial statements can make better judgements about the financial position and operating performance of the hospitality business. There are two accounting methods for determining when to record results of a business transaction: cash accounting and accrual accounting.
• Consistency: The generally accepted accounting principle of consistency states that, once an accounting method has been adopted, it should be followed consistently from period to period. This way, accounting information can be comparable.

II- Accounting Activities:
• The basic accounting activities include:
1. Recording business transactions: the procedure of entering the results of a transaction in an accounting document called the journal.
2. Classifying: assembling the numerous business transactions into related categories.
3. Summarizing: Preparation of financial information according to the formats of specific reports or financial statement.