Financial Accounting: Study Guide

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Part 1 Generally Accepted Accounting Principles (US GAAP)- GAAP is a very important concept in regards to financial statements. GAAP provides a uniform means of evaluating company performance. GAAP also provides clear metrics in which all publically traded companies must follow. These standards are designed to help protect society, investors, and stakeholders for fraudulent activities that may endanger the well being of society. Although GAAP has been met with extreme criticism of late, it does help abate the influence of fraudulent activity on the part of corporations. More importantly, GAAP is flexible in regards to its standards. The rules and procedures for reporting under GAAP are complex and have developed over an extended timeframe. Currently there are more than 150 "pronouncements" as to how to account for different types of transactions, ranging from how to report regular income from the sale of goods, and its related inventory values, to accounting for stock bonuses. This flexibility combined with standard proceeds helps to maintain the integrity of financial statements. This allows investors and other stakeholders to evaluate companies in a similar manner irrespective of size. A company with $2 billion in annual revenue can be evaluated in a similar manner to that of a company earning $500,000. International Accounting Standards (IFRS) IFRS is similar in concept to that of GAAP. IFRS is unique in that is applies to more international countries. The IFRS was
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