GAAP or generally accepted accounting principles are the rules and standards that accountants are supposed to strictly follow in their recording in the books of accounts leading to the preparation of the financial statements. It governs the standard presentation of financial statements which accountants should adhere to.
Discussions about GAAP were never brought up in the early years of the accounting profession; hence, accountants did not have a comprehensive body of theories for guidance. It was only in 1973 that concepts about GAP were embodied by the Financial Accounting Standards Board (FASB). It was specifically aimed at providing accountants with a set of standards instead of consulting different books for rules and procedures in recording events that transpired in the business. The formation of GAAP was in agreement with the Code of Professional Conduct of the American Institute of Certified Public Accountants (AICPA) regarding the expression of opinion by its members on the financial statements. Matters about GAAP today deal with accounting as a structured order of logic of recording.
Another thing about GAAP is that it was developed from experience for the fair presentation of financial statements to be reliable, useful, and essential. All other concepts about GAAP are similar to other social disciplines and principles governing commercial law.
To have a broader idea about GAAP, here are some of the examples about GAAP that serve as guidance for accountants to follow:
Specific Business Entity– The transactions of the business owner are kept separately from the operations of the business entity. This is to properly account and reflect that all reported amounts are all business-related.
Going Concern– The accounting techniques and methods used by the business is that it will continue to be operational indefinitely in the absence of evidence of closure.
Monetary Expression in the Financial Accounts– Money is used as a measure to record and report business transactions and results of operations thereof.
Historical Costs– Items acquired by the business are based on the cash outlay or the cash equivalent.
Realization Concept– Revenue is realized upon the delivery of goods, although this is only one of the series of events about sales.
Further ideas about GAAP were emphasized as much as the United States of America will fully adopt the methods of the International Financial Reporting Standards (IFRS) sometime in 2016 due to worldwide usage. The junking of GAAP will be part of history on how this transition will affect various businesses in the USA.