Generally accepted accounting principle (GAAP) is one of the accounting principles that are broadly used by companies. It is used by the companies to compile the financial statements together. It is nothing but a commonly used and accepted technique of reporting and recording accounting information.
One of the basic reasons why GAAP is used is to maintain consistency amongst firms. Thus it would facilitate inter-firm as well as intra firm comparison of the financial statements of different companies. A glimpse through generally accepted accounting principles homework answers can help you deal with the problems.
Understanding GAAP and its details:
Â GAAP covers a vast area such as balance sheet statement, net revenue and also the outstanding share of the firms. Thus if a company doesnâ€™t prepare its financial statement using GAAP, then the investors should be cautious before investing in those companies. GAAP is enforced
In this educational blog that would help you out with your generally accepted accounting principles homework answers, we would be talking about GAAP.
How did GAAP evolve?
Being an accountancy student, it is important for you to know and understand the root of GAAP, from where it evolved. Without a standard system, it would be difficult to analyze and estimate companies. There wouldnâ€™t have been any regulation. As a result of this, every company would be using different methods to make their financial statements.
Initially, this is how the companies used to function. One of the prime reasons of the monetary catastrophe after Great Depression was the fault in the financial statement and manipulative financial statements that were posted by the companies. As a result, the hardship of the Americans increased even further.
They started losing confidence on investment. To give a boost and help retrieve back the confidence of the investors the Fed government with the help of the panel of accountants put forth the generally accepted accounting principles (GAAP). GAAP ensured that the shortfalls the led to the complete breakdown of the system were again retrieved back, and it thus established a more competitive financial market.
GAAP is followed by almost all companies, but the up gradation or maintenance of GAAP is looked behind by the some of the independent board members. The FASB, Financial accounting standard board is responsible for the one responsible for choosing the board members.
What is the primary goal of using GAAP?
Most of the firms print annual reports to their investors and shareholders. It is sometimes published to the general public. These financial statements are of great importance as it gives confidence to the investors to invest in a company. But for that, it is important that all the companies use a uniform method of making these statements. So these are the primary goal of GAAP. It ensures uniformity amongst the companies.
The basic accounting principle under GAAP
The four basic principles that should be followed while completing generally accepted accounting principles homework answers are revenue, the cost incurred, matching and disclosure of accounts.Â The cost principle states that the cost should be listed that is to be acquired, while the revenue principle states that all the revenue must be listed when it is acquired. The matching principle states that the cost should equal the revenue. Lastly according to the disclosed principle, all the relevant information that is pertaining to the financial statement should be disclosed so that judgment can be made easily.
What are the 10 basic principles of GAAP?
There are ten basic principles of GAAP which should be followed while doing generally accepted accounting principle homework answer. The basic principles are:
- Principle of regulatory
- Principle of consistency
- Principle of sincerity
- Principle of prudence
- Principle of periodicity
- Principle of Materiality
- Principle of utmost faith
- Principle of non-compensation
- Principle of continuity
- Principle of permanence of method
Generally accepted accounting principle homework answers: Tips
These are used as simple principles. It can be used in accordance with the interpretations made by the individual firms. There is always a room for amendment. It depends on the individuals how they are going to implement these rules.
It depends on the individuals understanding. Thus implementing this principle is both an art as well as science. Bing an accountancy student it can be a bit tricky at first to understand how to implement these principles. That is why we recommend you the different homework providing services that are available.
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