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Defining GAAP as It Applies to Accounting Guidelines

GAAP stands for generally accepted accounting principles. When your company's accounting guidelines are set up to comply with GAAP, your accounting is being performed correctly.

  1. What Is GAAP?

    • GAAP is a framework of accounting standards, rules and procedures defined by the professional accounting industry, which has been adopted by nearly all publicly traded U.S. companies. A company's accounting guidelines need to follow GAAP in order to be consistent with other companies in the industry.

    Sources of GAAP

    • GAAP now includes four categories (A--D) of established accounting principles. A has the highest authority and D the lowest; prepares of financial statements look to category A first for appropriate accounting principles.

    How GAAP Works

    • GAAP is updated on a regular basis by the Financial Accounting Standards Board (FASB) as new accounting methodologies are developed. A company's accounting guidelines must be kept up to date with current GAAP.

    Why GAAP Matters

    • GAAP financial results provide investors with reliable and consistent information on which to base investing decisions. Being able to analyze financial statements with reliable and consistent information is very important to investors.

    FASB 162

    • FASB 162 (issued May 8, 2008) clarifies that it is the entities' responsibility to pick the accounting principles used to prepare financial statements. Your company's accounting guidelines reflect the specific accounting principles used by your company to prepare its financial statements.

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References

Comments

  • cpareviewfree Jul 27, 2010
    Good summary!! I also prepared a mindmap and mnemonics for memorizing the sources of GAAP in my blog. Keep writing!

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