United States Generally Accepted Accounting Principles

In the United States, companies currently use Generally Accepted Accounting Principles (GAAP). These accounting principles are rule-based and follow very strict guidelines when preparing financial statements. The rules that are contained in GAAP are created by the Financial Accounting Standards Board (FASB). The FASB is the main authority when it comes to GAAP.

GAAP is mainly responsible for providing financial reports to anyone interested. The financial reports that are included in GAAP are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. In doing so, these reports should provide useful information to present to various parties such as potential investors and creditors. This is important because the financial reports can either help your company to attract new business or do the exact opposite and take business elsewhere.

There are many rules that must be followed in order to present precise, relevant, and accurate financial reports. These rules are based on different assumptions, principles, and constraints. The assumptions that must be followed are the business entity, going concern, monetary unit, and time-period assumption. The principles are as follows: cost principle, revenue recognition principle, matching principle, and the full disclosure principle. The constraints are objectivity, materiality, consistency, and prudent constraints. All of these aid in preparing and presenting financial reports of a business using GAAP.

-Jeff