If GAAP are not the
principles used for preparing financial statements, then a business needs to
make clear which other form of accounting they're used and are bound to avoid
using titles in its financial statements that could mislead the person examining
it.
If everyone involved in the process of accounting followed their own system, or no system at all, there's be no way to truly tell whether a company was profitable or not. Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in bookstores and libraries devoted to just this one topic. Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP.
Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in bookstores and libraries devoted to just this one topic. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be.
Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses.
GAAP are not cut and dried. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books.
If everyone involved in the process of accounting followed their own system, or no system at all, there's be no way to truly tell whether a company was profitable or not. Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in bookstores and libraries devoted to just this one topic. Unless a company states otherwise, anyone reading a financial statement can make the assumption that company has used GAAP.
Most companies follow what are called generally accepted accounting principles, or GAAP, and there are huge tomes in bookstores and libraries devoted to just this one topic. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be.
Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed accounting methods and the financial reporting systems of businesses.
GAAP are not cut and dried. You've surely heard the phrase "creative accounting" and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books.
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