Lecture # 2 — Generally Accepted Accounting Principles (GAAP) | Accounting and Finance Assignment

 

1. GAAP — Generally Accepted Accounting Principles

(NOTE: You can make tables for the given examples of this Lecture!...)

These are the basic rules and guidelines that accountants follow while preparing financial statements. They ensure consistency, reliability, and comparability of financial data.



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2. Business Entity Principle


According to this principle, the business and the owner are treated as separate entities.


When the owner invests cash or other assets into the business, it becomes the property of the business, not the owner personally.


The owner’s claim on the business assets is called Capital or Owner’s Equity.

> Example:

Owner invests $10,000 cash into the business.


Journal Entry:


Date Account Title & Explanation Debit ($) Credit ($)


Oct 10 Cash 10,000 

 Capital 10,000

 Owner invested cash in the business.  





Accounts Involved:


Assets (Cash) → Increase → Debit


Capital (Owner’s Equity) → Increase → Credit




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3. Rules of Debit and Credit


Type of Account Increase Decrease


Assets Debit Credit

Liabilities Credit Debit

Capital Credit Debit

Expenses Debit Credit

Revenue Credit Debit



Remember:


Debit means what comes into the business.


Credit means what goes out from the business.




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4. Journal Entries (Examples)


(i) Oct 2 — Purchased Furniture by paying cash $2,000


Date Account Title & Explanation Debit ($) Credit ($)


Oct 2 Furniture 2,000 

 Cash 2,000

 Purchased furniture for cash.  



Analysis:


Furniture (Asset) increases → Debit


Cash (Asset) decreases → Credit




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(ii) Oct 3 — Purchased Equipment on Credit $5,000


Date Account Title & Explanation Debit ($) Credit ($)


Oct 3 Equipment 5,000 

 Accounts Payable 5,000

 Purchased equipment on credit.  



Analysis:


Equipment (Asset) increases → Debit


Accounts Payable (Liability) increases → Credit




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(iii) Oct 10 — Purchased Building for $100,000, paid $3,000 cash, rest as Notes Payable


Date Account Title & Explanation Debit ($) Credit ($)


Oct 10 Building 100,000 

 Cash 3,000

 Notes Payable 97,000

 Purchased building by paying part cash and signing note payable.  



Analysis:


Building (Asset) increases → Debit


Cash (Asset) decreases → Credit


Notes Payable (Liability) increases → Credit




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(iv) Oct 15 — Provided Services to Customers $1,000 in Cash


Date Account Title & Explanation Debit ($) Credit ($)


Oct 15 Cash 1,000 

 Service Revenue 1,000

 Provided services for cash.  



Analysis:


Cash (Asset) increases → Debit


Service Revenue (Income) increases → Credit




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(v) Oct 15 — Paid Accounts Payable $3,000


Date Account Title & Explanation Debit ($) Credit ($)


Oct 15 Accounts Payable 3,000 

 Cash 3,000

 Paid outstanding payables.  



Analysis:


Liability decreases → Debit


Cash decreases → Credit




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(vi) Oct 16 — Paid Salaries to Employees $2,000


Date Account Title & Explanation Debit ($) Credit ($)


Oct 16 Salaries Expense 2,000 

 Cash 2,000

 Paid first half of month’s salaries.  



Analysis:


Expense increases → Debit


Cash decreases → Credit




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(vii) Oct 17 — Provided Services on Account $1,000


Date Account Title & Explanation Debit ($) Credit ($)


Oct 17 Accounts Receivable 1,000 

 Service Revenue 1,000

 Provided services on account.  



Analysis:


Accounts Receivable (Asset) increases → Debit


Revenue increases → Credit




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(viii) Oct 30 — Received Partial Payment from Debtors


Date Account Title & Explanation Debit ($) Credit ($)


Oct 30 Cash 200 

 Accounts Receivable 200

 Received part payment from customers.  



Analysis:


Cash increases → Debit


Accounts Receivable decreases → Credit




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5. Important Concepts


Accrual Basis:

Revenues are recorded when earned, and expenses are recorded when incurred, regardless of when cash is received or paid.


Double Entry System:

Every transaction affects two accounts — one debit and one credit, maintaining the accounting equation:

Assets = Liabilities + Owner’s Equity




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Conclusions 


This lecture explains the foundation of recording business transactions under GAAP.

Through examples, it shows:


How each transaction affects the financial position of a business.


How debits and credits maintain the balance of the accounting equation.


Why timely and accurate recording is essential for decision-making.

?!&$@#&***


Student: Saifullah Khan

University: Karakoram International University

Course: Accounting and Finance

Program: BBA

The End...!

Please drop a comment 👇 , if you got some things wrong in the text.......

Thank you!.




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