About GAAP

 

While many business accountants assume that they are bound by commonly accepted accounting practices and are inactive, nothing else can be done with the truth. Everything is subject to interpretation and GAAP is also unchanged. For one thing, GAAP allows alternative accounting methods to be used for certain expenses and income of certain businesses. For others, GAAP methods need to make decisions about the timing of revenue and expenditure, or quantify the key factors. Judgments, estimates and interpretations are needed to determine the timing of revenues and expenses and to set specific values ​​on these factors.

GAAP’s mission over the years has been to standardize accounting systems to ensure uniformity across all businesses. But alternatives are still allowed for certain basic business expenses. There is no need to test whether one method is better than another. The business is free to choose any method it wants. But it should be used to determine the cost of a good selling cost method and what depreciation expense method.

One common accounting system has been established for other expenses and sales revenues; There are no alternatives. However, a business has a reasonable latitude when actually implementing the system. One business applies accounting methods in a conservative way and another business applies it in a more liberal way. The end result is that the GAAP has been evolving since the 1930s, more than expected in the profit and measurement statements of businesses.

The statement on GAAP prepared by the Financial Accounting Standards Board (FASB) is now over 1,000 pages long. It does not even include rules issued by the federal regulatory agency. It is the jurisdiction of the financial reporting and accounting systems of publicly owned businesses – the Securities and Exchange Commission (SEC).