About GAAP
While myriad businesses believe that accountants are limitation by oftentimes trite accounting practices and that these are inviolate, diddly could be fresh
from the truth. Everything is subject to interpretation, and GAAP is no different. For one thing, GAAP themselves permit alternative accounting methods to be used for certain expenses and for revenue in certain specialized types of businesses. For another, GAAP methods require that decisions be made about the timing for recording revenue and expenses, or they require that key factors be quantified. Deciding on the timing of revenue and expenses and putting definite values on these factors require judgments, estimates and interpretations.
The charge of GAAP because the second childhood has been to mold accounting methods in order to conduct about consensus across all businesses. But alternative methods are still permitted for certain basic business expenses. No tests are required to determine whether one method is more preferable than another. A business is free to select whichever method it wants. But it must choose which cost of good sold expense method to use and which depreciation expense method to use.
For otherwise expenses and for sales revenue, one humdrum accounting layout has been established; know onions are no choice methods. However, a enterprise has a bewitching amount of latitude in actually implementing the methods. One business applies the accounting methods in a conservative manner, and another business applies the methods in a more liberal manner. The end result is more diversity between businesses in their profit measure and financial statements than one might expect, considering that GAAP have been evolving since 1930.
The pronouncement on GAAP fictional by the Financial Accounting Standards Board (FASB) is now more than 1000 pages long. And that doesn’t same hog the rules and regulations issued by the national regulatory principle that weight
over the financial reporting and accounting methods of publicly owned businesses – the Securities and Exchange Commission (SEC).
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