Basic Principles of the GAAP Method of Financial A
Posted on July 7th, 2010 by admin
If all businesses used their own system of accounting, or indeed no system at all, there would be no way to tell which companies are profitable and which are not. Nearly all businesses follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in libraries and bookstores devoted to just this one topic. Everyone can assume that a firm has used the GAAP system unless they specifically state otherwise. When GAAP methods are not used the company needs to make clear which other form of accounting they have used and are banned from using misleading titles in their financial statements. GAAP are the gold standard for preparing financial statement. If a company does not disclose it doesn’t use GAAP it makes them financially liable for any misunderstanding in the data they supply. GAAP methods have been fine-tuned over many decades and bascially created a whole way for the financial systems of companies to work. There are a number of other financial reporting systems which are used for other types of business type such as governments, charities and not for profit businesses.
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