What are the two main principles that GAAP mandates that we use in Financial Accounting of Public Companies?

Question

A hint: Those two principles ensures that when we close the books at the end of the period that we are exact as far as posting and journaling according to accrual accounting, not cash accounting?

Answer 1

1) The Revenue Recognition Principle: Revenues are recorded as earned.

2) The Matching Principle: or The Expenses Recognition Principle: Expenses are recognized as incurred.

In plain English, the GAAP (Federal Government) mandates the posting to accounts and journaling (that is recognizing) revenues when the work or service has been provided not when paid, and expenses are recorded when the expense has taken place not as the payment is received. This is called accrual accounting versus cash accounting. This is how we keep the books straight.