Recognition and Measurement Concepts
When and How Items Are Reported
Recognition determines whether an item should appear in the financial statements. Measurement determines the amount at which it should be reported. Items are generally recognized when they satisfy the definition of an element and can be measured reliably.
- Historical cost
- Fair value
- Net realizable value
- Present value
- Current replacement cost (limited applications)
Note
Historical cost remains the most common measurement basis under U.S. GAAP, although fair value is increasingly used for certain assets and liabilities.
Summary
Recognition determines whether an item belongs in the financial statements, while measurement determines its reported value.