Generally Accepted Accounting Principles

1491 Words Nov 27th, 2010 6 Pages
Generally Accepted Accounting Principles (United States)
In the U.S., generally accepted accounting principles, commonly abbreviated as US GAAP or simply GAAP, are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly-traded and privately-held companies, non-profit organizations, and governments. Generally GAAP includes local applicable Accounting Framework, related accounting law, rules and Accounting Standard.
Similar to many other countries practicing under the common law system, the United States government does not directly set accounting standards, in the belief that the private sector has better knowledge and resources. US GAAP is not written in law, although
…show more content…
This principle allows greater evaluation of actual profitability and performance (shows how much was spent to earn revenue). Depreciation and Cost of Goods Sold are good examples of application of this principle.
• Disclosure principle. Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Information disclosed should be enough to make a judgment while keeping costs reasonable. Information is presented in the main body of financial statements, in the notes or as supplementary information
[edit] Constraints
• Objectivity principle: the company financial statements provided by the accountants should be based on objective evidence.
• Materiality principle: the significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual.
• Consistency principle: It means that the company uses the same accounting principles and methods from year to year.
• Prudence principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked (see convention of conservatism).
Generally Accepted Accounting Principles (UK)
The Generally Accepted Accounting Practice in the UK, or UK GAAP, are the overall body of regulation establishing how company accounts must be prepared in the United
Open Document