By recognizing this stuff, businesses can avoid underreporting liabilities or revenues, guaranteeing compliance with usually accepted accounting rules (GAAP). Consider an instance the place a company enters into a contract to incur consulting services. If the corporate receives an bill for $5,000, accounting principle states that the company should technically recognize this transaction as a outcome of it is contractually obligated to pay for the service. A firm promising staff a year-end bonus for performance may accrue the expense all year long. If the bonus is earned in December but paid in February, the corporate data it as an expense in December to match it with the revenues generated in the course of the yr.<\/p>\n