Your Complete Guide to GAAP |
Posted: June 26, 2020 |
Generally accepted accounting principles (GAAP) refer to a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB). Public companies in the United States must follow GAAP standards when their accountants compile their financial statements. GAAP Principles are a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP aims to improve the clarity, consistency, and comparability of the communication of financial information. And the GAAP definition, or standards, is accepted worldwide by more than 100 countries. U.S. law requires businesses that release financial statements to the public, and companies that are publicly traded on stock exchanges to follow GAAP guidelines.
And What Are the Basic Principles of Accounting? The Business as a Single Entity Concept- A business is a separate entity in the eyes of the law. All its activities are treated separately from that of its owners. In legal terms a business can exist long after the existence of its promoters or owners. The Specific Currency Principle- A currency is specified for reporting the financial statements. In the United States all the numbers have to be expressed in US dollars. Companies who conduct parts of their businesses in foreign currencies have to convert the amounts in US dollars using the prevalent exchange rate while reporting their financial statements. The Specific Time Period Principle- Financial statements always pertain to a specific time. Income statements have a start date and an end date. Balance sheets are reported as on a certain date. This way the readers know during which period the business transactions were conducted in. The Historical Cost Principle- Historical costs are used for valuing items. The prices at which items were brought and sold are used for the valuations. Real values do change during the course of time due to inflation and recession, but these are not considered for reporting purposes. The Full Disclosure Principle- With all the accounting scandals in the news, the full disclosure principle is important. It is required that companies reveal every aspect of the functioning in their financial statements. The Recognition Principle- States that companies reveal their income and expenses in the same time period in which they were accrued. The Non-Death Principle of Businesses- The accounting principles assume that businesses will continue to function eternally and have no end date as such. The Matching Principle- The accrual system of accounting is to be used and for every debit there should be a credit and vice versa. The Principle of Materiality- Then there are principles which require the bookkeepers to use their judgment. There are inaccuracies in all accounting records. A five dollar error can be ignored, but not a $10,000 error. This is where accountants have must use their own judgment. The Principle of Conservative Accounting- When expenses occur they are to be recorded immediately, but income is to be recorded only when the actual cash has been received. GAAP, Rely Services and You Our complete knowledge of, and adherence to, the principles of GAAP make Rely Services the gold standard in Business Process Outsource Services. Our team of Finance and Accounting BPO professionals are current with the rules for each state. Our expertise extends to rules and regulations for over 50 foreign countries as well. Contact Rely Services today for a no cost evaluation of your business financial and accounting needs, and how we can help you save 40% and more in accounting costs, trimming your overhead, and allowing you to concentrate on your core business pursuits- like making money. https://www.relyservices.com/blog/a-complete-guide-to-gaap
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