A Primer of Generally Accepted Accounting Principles

Accountants Glasgow are the ones who keep the standards. They ensure that any financial statement we see is comparable to those of other companies and was constructed using sound accounting practices.

Although it sounds daunting, don’t worry. You can count on the accounting professional to guide you through this process.

The accounting profession is selfregulated. They decide how to record company activity on financial books of records. They do this by a distinguished board of professionals, the Accounting Practices Board of American Institute of Certified Public Accountants. This group defines the “Generally Accepted Accountant Principals” (GAAP), which all public accountants must comply with for their clients.

This paper does not cover the process of changing or introducing new GAAP. However, it will provide a wealth of information for both CPAs as well as business people.

GAAP’S PURPOSE

GAAP was established to ensure consistent accounting practices within all regulated companies. The SEC requires that all publicly traded companies be audited at minimum once per year by a Certified Public Accountant. Stockholders can trust the financial information from the company’s CPA because it is in compliance to GAAP.

You should prepare all financial information according GAAP.

Management can trust the records and make course corrections to improve their departments or the company in general.

o Investors can be confident in their ability to make sound financial decisions based upon the financial records.

o Prospective stockholders, as well as stockholders, get a clear picture of the company’s financial health.

Stock can be fair valued on the market

o All deceptive and unfair practices, as well as criminal ones, are minimized.

PRIMARY PRINCIPLES

Here are some of the fundamental principles that GAAP is built upon. It is not an exhaustive description of GAAP. This document is detailed and requires a lot of study to understand, but it shows that there is an abiding purpose behind all the detail.

1. Historical Cost Principle. The original cost of assets, less the appropriate amortization or depreciation, is what determines their value. This allows companies to avoid stating assets at their market values, which is very subjective and difficult to establish. Historical cost gives the actual cost which can be very objective.

2. Revenue Recognition Principle: This means revenue is only recognized when it’s earned. If your company provides a service in December, but the customer doesn’t pay until January, your December revenue will include the difference. January will not include the amount, even though it was the month when you made the payment.

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