All You Need to Know about GAAP Accounting Standards: A Guide to Accounting Principles
GAAP, or Generally Accepted Accounting Principles, refers to rules and parameters set by the Accounting Practices Board of the American Institute of Certified Public Accountants. GAAP also includes certain established ways of accounting, which may or may not have been set by any authority.
Aim of GAAP:
GAAP aims toward making the accounting procedure transparent and make it easier for investors and creditors to get information. Here are some of the goals of GAAP.
1) To make information available to investors and lenders so they can make sound decisions regarding loans and investments.
2) To make information available about resources, funds, and finances.
3) To help investors and lenders assess the viability of an investment or a loan.
Principles behind GAAP:
This section discusses some of the principles behind GAAP.
1) Historical Cost Principle: Companies should make financial statements based on costs related to acquisition of assets and not fair market value. This removes any confusion regarding value of liabilities.
2) Revenue Recognition Principle: The financial statement must state whether revenue is realized or earned.
3) Full Disclosure Principle: The extent of information disclosure is based on analysis of tradeoff.
4) Matching Principle: Expenses have to be proportionate to revenues.
GAAP Suppositions:
In order to make GAAP implementation effective, here are a few basic assumptions regarding the rules.
1) Going Concern Assumption: The business is long term.
2) Economic Entity Assumption: Business is an independent entity and has an identity different from its owner.
3) Monetary Unit Assumption: The monetary currency that is going to be used for recording financial statements will be the stable currency.
4) Periodic Reporting Assumption: Business operations are to be regularly reported, and there will be a regular gap between reports.
GAAP Limits:
GAAP puts some limits on financial reporting.
1) The advantages of financial reporting need to be considered along with cost of giving the information.
2) The procedures need to scrupulously follow GAAP practices.
3) Given two financial reports, the most accurate one should be selected.
In addition to the above principles and conventions, the financial statement needs to be relevant and reliable, since investors and lenders will make decisions based on it. The report should follow prescribed norms so that reports of different businesses can be compared. Reporting should be consistent, and the accounting method should not vary too much over time. GAAP helps financial reports achieve all of the above and prevents financial misrepresentation. If you need to know more about how to implement GAAP in your financial statements, you can consult small business professionals, who will help you draw up a financial report that implements the major GAAP norms.
Related Tags: business, accounting
Alexander Gordon is a writer for http://www.smallbusinessconsulting.com - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.
Business Owners all across the country are joining "The Community of Small Business Owners" to receive and provide strategies, insight, tips, support and more on starting, managing, growing, and selling their businesses. As a member, you will have access to true Millionaire Business Owners who will provide strategies and tips from their real-life experiences. Your Article Search Directory : Find in Articles
Recent articles in this category:
- The No. 1 Rule For Projecting Confidence - Speak With Authority
One of the most important characteristics a person can project in a business setting - or any situat - After the Autumn Checkout European Debt Crisis and U.S. Brewing Rebound
In the commotion caused by the Fed on interest rates come to an end, the "disastrous" for the euro a - Advantages Of Arcade Game Rentals
There are many different advantages to arcade game rentals. Most people need something to release th - A General Primer on Truck Cargo Nets
In modern highways it is quite rare to see truck cargo nets in action, this is because they are usua - The United States Will Burst More Severe Financial Crisis
Not long ago, suddenly announced that the central bank to raise interest rates, the interest rate hi - Niche Marketing Profits - 3 Easy Steps to Finding a Profitable Niche Market Income in 10 Minutes
Like most beginners I was having a very difficult time trying to find a niche market to earn extra m - The Importance of Hospitality Management Consulting Firms Toronto
Businesses and the managers that help guide any business are in a constant state of improvement and - New Keynesian Theory Label
2010 winner of the Nobel Prize in Economics three theories have been labeled as "New Keynesian" labe - Federal Reserve Pouring Money QE2 Unpredictable Fortune
U.S. economist Milton Friedman proposed a "throw the cash from a helicopter" view, while the practic - Fiscal Consolidation Should no Longer Delay
British Chancellor of the Exchequer George Osborne today announced fiscal consolidation policy, shoc
Most viewed articles in this category:
- Common Financial Problems to Avoid
One must first change their habits and not procrastinate. American Consultants Inc at offers key fi - How a Bad Hire Can Hurt Your Business
What's worse - hiring the wrong person or not hiring anyone at all? Companies can become almost des - Joel Comm Is Dr. Adsense
What is Adsense? If you are new to making money online and net marketing, you may not know what Ads - 5 Steps For A Dynamic Wealth System Online
Recipe: Opportunity + knowledge + Dynamic Wealth System + Your Action = Massive Success!!! Step 1 - How To Stop Foreclosure
Losing your house to a foreclosure can be very scary. There are times when circumstances are ou - How to Always Pitch A Strike
As business owners, we are always working on new ways to convince people to become customers, client - Membrane Diffuser Solutions for Wastewater Treatment Systems
In the aeration basin of a typical wastewater treatment plant there are both organic and inorganic m - Another Year Hating Your Job or Loving Life?
Copyright © 2007 Mary Foley I've come to the conclusion that to be successful - really successf - Dyestuff Industry In India And China
World demand for dyes and organic pigments to touch $10.6 billion in 2008According to a study on dye - Cma-cgm Case : the Series of Lawsuits Continues in Syria, Lebanon, Egypt, France, England and the United States
Damietta company case : The series of lawsuits continues in Syria, Lebanon, Egypt, France, England a