generally accepted accounting principles

Examples of generally accepted accounting principles in the following topics:

• Overview of Income Tax Accounting

  • There is a difference between Internal Revenue Service code and generally accepted accounting principles for reporting tax liability.
  • In order to properly account for income taxes, it is important to understand that the Internal Revenue Service code that governs accounting for tax liability isn't the same as the generally accepted accounting principles (GAAP) for reporting tax liability on the financial statements.
  • Permanent difference: Due to generally accepted accounting principles treating items such as income and expenses differently than the IRS, the difference may never reverse.
  • This method is the only one accepted by GAAP.
  • Reporting income tax is complicated by the fact that IRS code differs from generally accepted accounting principles

• Objectives of Accounting

  • With these objectives in mind, financial accountants produce financial statements based on the accounting standards in a given jurisdiction.
  • These standards may be the generally accepted accounting principles of a respective country, which are typically issued by a national standard setter, or International Financial Reporting Standards, which are issued by the International Accounting Standards Board.
  • Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or Standard accounting practice.
  • They are progressively replacing the many different national accounting standards.The rules to be followed by accountants to maintain books of accounts which is comparable, understandable, reliable and relevant as per the users internal or external.
  • Describe the objectives of accounting, distinguishing between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)

• Introduction to GAAP

  • Generally Accepted Accounting Principles (GAAP) is the standard framework for financial accounting used in any given jurisdiction.
  • Generally Accepted Accounting Principles (GAAP) refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards.
  • Currently, the Financial Accounting Standards Board (FASB) establishes generally accepted accounting principles for public and private companies, as well as for non-profit organizations.
  • The AICPA first created the Committee on Accounting Procedure in 1939, and replaced it with the Accounting Principles Board in 1951.
  • Consistency principle: the company uses the same accounting principles and methods from year to year.

• Differences Between GAAP and IFRS and Implications of Potential Convergence

  • A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based.
  • A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based.
  • The convergence of accounting standards refers to the goal of establishing a single set of accounting standards that will be used internationally, and in particular the effort to reduce the differences between the US Generally Accepted Accounting Principles (US GAAP), and the International Financial Reporting Standards (IFRS).
  • The growing acceptance of International Financial Reporting Standards (IFRS) as a basis for U.S.financial reporting represents a fundamental change for the U.S. accounting profession.
  • State the difference between Generally Accepted Accounting Principles and International Financial Reporting Standards

• Disadvantages of LIFO

  • Generally Accepted Accounting Principles (U.S.
  • On June, 18, 2008, the SEC issued a press release stating that the world’s securities regulators are uniting to increase their oversight of international accounting standards.
  • Most of the developed countries, such as Australia, New Zealand, Canada and the European Community Union, have adapted IFRS by the year 2011.Under IFRS rules, LIFO is not a permitted acceptable accounting method.
  • In prior budgets, the Obama Administration has proposed to repeal LIFO altogether in an attempt to generate greater tax revenues.

• Consumers of Accounting Information

  • Most of a company's stakeholders consume its accounting information in one form or another.
  • Early accounts served mainly to assist the memory of the businessperson, and the audience for the account was the proprietor or record keeper alone.
  • This development resulted in a split of accounting systems for internal (i.e., management accounting) and external (i.e., financial accounting) purposes and, subsequently, also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.
  • Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting.
  • The body of rules that governs financial accounting in a given jurisdiction is the Generally Accepted Accounting Principles, or GAAP.

• Reporting of Financial Statement Analysis

  • In the US, companies must conform to GAAP, or generally accepted accounting principles.
  • These principles are set forward by the FASB, or the Financial Accounting Standards Board.
  • Objectivity principle: the company's financial statements provided by the accountants should be based on objective evidence.
  • Consistency principle: the company uses the same accounting principles and methods from period to period.
  • Explain the role Generally Accepted Accounting Principles plays in the preparation of financials statements

• Usage of Accounting Information

  • Economic information is generally displayed in the form of financial statements that show the economic resources that a business currently has; the goal of the business is to determine which information is useful to the outside world.
  • This development resulted in the division of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes.
  • Accounting that provides information to people outside the business entity is called financial accounting.
  • The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.
  • Explain the history of accounting and how accounting information is useful

• Full-Disclosure Principle

  • The full disclosure principle states information important enough to influence decisions of an informed user should be disclosed.
  • Another aspect of completeness is fully disclosing all changes in accounting principles and their effects.
  • As an accountant, the full disclosure principle is important because the notes to the financial statements and other financial documents are subject to audit.
  • The financial statements have been prepared using the generally accepted accounting principles which have been consistently applied;
  • Any changes in the accounting principles or in the method of their application and the effects thereof have been properly determined and disclosed in the financial statements.

• Why an accounting system is important

  • Professional accountants look at the accounting records and reports of a business from two perspectives.
  • Independent auditors of an organization's financial statements must provide written assurance in their report that such statements were prepared in accordance with Generally Accepted Accounting Principles (GAAP).
  • According to their website, their mission "is to develop, in the public interest, a single set of high quality, understandable and international financial reporting standards (IFRSs) for general purpose financial statements" (IASB 2009).
  • The reason for this is that there may be national standards for generally accepted standards that are, in some ways, unique to your country.
  • Accordingly, the balance of this chapter is focused on how you can use a well-designed accounting system as the basis for generating useful information to help you run your business.