Generally Accepted Accounting Principles (GAAPs) are standards applied in accounting and financial management to ensure consistency in procedures and techniques for preparing financial statements.

GAAP Concepts

The key concepts in GAAP include:

Business Entity:

A restaurant is a separate business entity from its owner, generating income, incurring expenses, managing assets, and handling liabilities.

Historical Cost:

Asset values are recorded based on their original purchase price, though the current fair value may change over time, such as property values increasing or equipment depreciating.

Going Concern:

The assumption is that the restaurant will continue to operate indefinitely unless there is evidence to the contrary.

Periodicity:

Financial statements must be prepared at regular intervals, such as monthly for management decisions and annually for tax purposes.

Expenses Matched with Revenues:

Expenses must be aligned with revenue in financial reporting, with accrual accounting recognizing income and expenses when they occur, regardless of cash flow.

Conservatism:

Potential losses should be recorded as soon as they are likely, while gains are only recorded when they are certain.

Consistency:

Financial information must be collected and reported consistently each year for accuracy and reliability.

Materiality and Practicality:

The practicality of reporting minor financial events or sensitive matters should be considered.

Effective Accounting

Three important characteristics of effective accounting under GAAP are:

1. Financial information must be relevant for decision-making, monitoring, and tax purposes.
2. The information must be up-to-date for daily operations and timely reporting.
3. Financial data must be accurate to provide a true picture of the financial health of the business.