What are generally accepted accounting practices?

What are generally accepted accounting practices? In the USA, the term GAAP is generally accepted accounting principles. This is the group of rules needing to be followed to prepare accounting reports for publicly traded companies. These appear to have their roots in the English common law system.

The US GAAP was not written into the securities laws, prepared by the Securities and Exchange Commission.The SEC requires that these accounting procedures are to be followed by companies whose stocks are publicly traded, as in the New York Stock Exchange and others.

The Financial Accounting Standards Board sets the accounting principles. The International Financial Reporting Standards provide the same guidelines for world trading companies.

GAAP is also utilized by local governments, however are designed by a Governmental Accounting Standard. Board. The governmental rules operate with a set principles and regulations chosen by the federal government.

The basis of GAAP is that the user or reader needs information that will be useful and helpful to make decisions about the company and stock value reported in the financial statements.

This is considered to be relevant information. Relevant information assists users to make predictions about the past, present and future value of the stocks they buy.This is called predictive value. This information helps the user confirm or correct their original opinion of their stocks. This is called feedback value. This must also be on time to make the correct decision.

For the information to be valid, the company needs to be viewed separate from the owners. The income from the sole proprietorship or partnership or corporation has to be kept separate from the income of the owners.

Also `going concern' assumes a company has been in business a goodly time.

Monetary unit in the USA is the dollar.

Periodic reporting is accenting that the reports are made monthly or quarterly or annually. This is important so businesses can be compared to day with the records of the financial records of last year or last quarter.

Historical cost is used instead of the fair market value from tax records or appraisals. The price paid for an asset in more reliable.

The revenue recognition principle requires that revenue be reported when it is earned, not when it is received.

Financial statements or financial reports are formal records of a business. These reports show the user about the businesses financial stability or other. They provide an overview of the profit or loss of a business. There are 4 kinds of these financial reports.

1. Balance sheet, which is a report of the company's assets, liabilities and equity over a certain time.
2. Income Statement is a profit and loss statement. This report shows the result of a company operating over a certain time.
3. Cash flow statement reports on a company's cash flow activity especially in its operating activities, and investments and financing steps.
4. A Statement of retained earnings explains the changes in a company's retained earnings over the time covered in the report.

Financial reports are produced with the assumption that the reader has some knowledge of business and financial activities, and the accounting process. Built into this is the term due diligence. A prospective buyer of stocks, for instance, owes it to themselves to research the stock and the company or corporation the stock represents.

Those inside the business, including management and the stockholders, use financial statements. Employees need these reports since their dividends or bonuses come from this information.

On the other hand, outsiders use this information. Potential investors would study these financial statements to see if they want to invest in that company. Lenders and financial firms look at these reports.Cash flow loans, small business loans; equipment purchase loans etc. all are decided from these financial reports.

Finally, the public looks at the reports. There are brokers recommending their clients buy stock from company AVG based on these financial reports.

These are what the generally accepted accounting practices are in the United States. This information should make it easier to get your accounting needs going.