GAAP or Generally Accepted Accounting Principles are some accounting principles which are adopted by the American Securities and exchange commission for the smooth accounting procedures in the country. These principles are the cornerstone for any US based firm using the accounting policies. The main role of developing these principles were by the auditors for the sake of business enterprises and companies.
The basic objectives that the USA accounting or the Generally Accepted Accounting Principles try to achieve with their principles are:
1. These principles help presenting the ideas and financial motives of the firms to the potential clients, creditors and the investors in making a bold and rational investment move as well as lending credit and also help in making certain financial decisions. The outside public is an important part of any business firm and company.
2. These principles also helps out in making a bold move in the market situations. These also helps in presenting to the potential clients, creditors and the investors about the assessment of the timing, amounts and also the uncertainty over the regarding cash receipts which concerns the economic as well as human resources. This also includes the changes in those resources as well as the claims.
3. These principles are quite helpful in making the financial decisions for the company. These decisions are either resources related or budget related and both have importance of their own.
4. These are quite helpful in making some long-term decisions for the company which may help in progression of the company in a long-run. The competition in the target market gets stiff from time to time and hence the decisions made for the long term will help efficiently.
5. These are helpful in making the better use of the resources and moreover the business of the company. The performance of the company is improved with time by the use of these principles. The human labor an also the machinery resources will have a longer efficiency life.
6. The most helpful thing with these accounting principles is that, it helps in maintaining a sustaining and reliable accounting records for a period of time. Accounting records helps in keeping a check on every activity which is related to the finance of the company, in check. The alteration is avoided and proper records are processed with this.
It means that the business is separate from it respected owners and investors and the other business of the owners. The revenue earned and the expenses which are incurred should be kept as a separate charge from the personal expenses.
The GAAP usually only accepts the nominal value of the US Dollar presented as the official monetary unit for the record of the financial records. It is unadjusted for inflation. This is done for influencing a stable currency for the representation for the unit of record.
This means that the business is assumed with an operation which is indefinite. This usually comes with the methods and processes of the amortization, depreciation and the asset capitalization. When the liquidation is uncertain then the assumption ratio is inapplicable. This will be resulted in the operation of the business to exist in a future which is quite unforeseeable.
This means that the economic activities and the financial activities as well can be divided prominently into equal time periods and can be distinguished easily. This periods are set for the purpose of making certain comparisons with the other time periods and drawing the required standards for it.
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This principle deals with the notion that the companies must account as well report for the proper acquisition costs which are rendered with the asset and the liabilities rather than their market fair value. This principle provides a background which is as reliable with its information but sometimes is not relevant to some period of time. As a result, their comes more traffic towards the usage of the fair values which are presented. Most of the debts and the securities of the firms are reported with the market value.
This principle stats that the companies should maintain the records revenue when the main revenue is actually earned but not when the revenue is received actually. The cash flow doesn’t have any source upon the relevant revenue recognition. The accrual basis of accounting have its essence with this principle. Losses and profits are recognized as the occurrence happens and becomes a probable. This comports with the constraint of conservatism, yet brings it into conflict with the constraint of consistency, in that reflecting revenues/gains is inconsistent with the way in which losses are reflected.
This principle deals with the amounts and kinds of the information which is disclosed at large and have to be decided based upon the trade-off analysis procedures which have a large amount of the source information regarding the records and books of the business firm. This official information which is disclosed at large is helpful enough for making a prominent judgment while considering the costs reasonable according. This information which is reviewed is provided with the main body of the financial statements or in the section of supplementary information.
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