Accountants are guardians of standards. They are the ones who make sure that when we take a financial statement, we can reasonably say that it is built on sound accounting practices and that it can be compared to borrowed financial statements from other companies.
It sounds like a daunting task, but it's never afraid. The accounting professional can help you in business.
The accounting profession is self-regulating. It decides the most appropriate way to register the company's business. This is done by experienced experts, the Board of Accountants of the American Institute of Certified Public Accountants (AICPA). This group defines so-called "generally accepted accounting principles" or GAAP that all accountants must comply with on behalf of all their clients.
The process used to introduce the new GAAP or to modify the old GAAP goes beyond this document but is a long process that has many CPAs and business people.
GAAP's main objective is to ensure the consistency of accounting practices, not just within a company, but at every regulated company. The SEC requires all publicly traded companies to be audited at least annually by a certified accountant (CPA). The CPA provides shareholders with the ability to rely on the company's financial data because it complies with GAAP.
Preparing All Financial Information in GAAP
o Management may depend on the records and correction of individual departments or the company as a whole to improve the company.
o Investors and creditors can make reliable decisions based on the company's financial records.
o Shareholders and prospective shareholders receive a clear picture of the company's financial position.
o Inventory can be fairly evaluated on the market
o Misleading, unfair and equal treatment is minimized.
The following are some of the principles on which GAAP is based. This is not at all a detailed description of GAAP, which is very detailed and requires many studies to become an expert but this is a permanent goal in all the details.
first Historical Cost Principle: Generally speaking, the value of a company's assets is the original cost of such a device, which does not correspond to depreciation or amortization. This prevents companies from investing their assets on their market value, which is not only difficult to establish but rather subjective. Historical cost is the actual cost, which is very objective.
2nd Revenue Accounting Manager: It simply states that your income is recognized when you are looking for a different time than you received. For example, if your company provides a service at the end of December, but the customer does not pay until January of the following year, the amount of December revenue includes this amount. January is not, even if this is the month in which the payment was deposited.
3rd Full Disclosure Principle: Any information that is strictly financially relevant to business activity and which may have a future impact should be disclosed. Of course, every transaction must be completed. But even more, this principle requires the publication of unexpected events. For example, if your company is being sued, the lawsuit should be analyzed for the chance of a possible loss. This emergency must be disclosed in a footnote to the financial statements. This is to prevent the creditor or investor from recognizing this potentially influencing information when making decisions about the company's investments or loans.
4th Appropriate principle: Simply, revenue must match the costs that helped create. That is why there are delimitations and deferrals. During this time, the costs associated with revenue for that period will also be displayed.
1. Care Assumption: The company or organization will "continue" and probably will not complete the operations in the current year. It is expected to remain in business for the foreseeable future. Exceptions to this assumption must be made public.
2nd Assumptions of an economic entity: The company is an independent entity and its own owners.
3rd Assumptions of a Monetary Unit: An entity's currency to measure financial performance is stable.
4th Assuming Periodic Reports: Business activities are reported on a regular basis, usually annually. The financial year does not have to be the same as the calendar year. This is usually done according to the company's business cycle.
Applying generally accepted accounting principles to any business is required. But you do not need to become an independent GAAP expert. Hire a good accountant. CPAs may be required if you are publicly owned or your credit or business needs.
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