The GAAP

While reading all about depreciation, goodwill, and changes in equity, it was hard to ignore the presence of GAAP. Since GAAP was completely new to me, I decided to do a bit of background research to look into its creation and importance in the world of accounting.

Definition: GAAP (generally accepted accounting principles) is a set of accounting standards and principles used by companies to assemble financial statements. GAAP are part standards set by policy boards and part commonly accepted ways of recording accounting information.

History: The American Institute of Accountants (later the American Institute of Certified Public Accountants) created the Committee on Accounting Procedure in 1939 that started research on accounting. A series of committees and boards issued opinions, statements and standards throughout the next handful of years that eventually became the  formalized GAAP.

Uses: GAAP is a collection of guidelines, not a set of rules, that regulate how financial statements are prepared and presented. GAAP covers basic principles and guidelines, detailed standards, and generally accepted industry practices.

Benefits: By adhering to GAAP, businesses can achieve consistency and organization with their financial information and also reduction the risk of misrepresentation. GAAP was created to protect businesses and investors and keeps companies accountable with their financial reports. By using GAAP businesses can be fair and transparent with financial information.