US GAAP Generally Accepted Accounting Principles are

Principle of Materiality – All financial data should be laid out in a GAAP-compliant report. Months, quarters, years-all good options to work with. Don't compare this quarter to the final two weeks of last year, or make up a five-month period to report against. Principle of Periodicity – This means that accountants should report financial data based on consistent and accepted time intervals. That means assumptions about the future should be in line with what's actually happened in the past. Principle of Continuity – When preparing reports, an accountant should assume that the company will continue to operate as it has. There's no room for speculation or prediction, especially as such activities can muddy the waters of fact-based reporting. Principle of Prudence – Accountants should only report facts. GAAP-compliant reporting shouldn't try to cover up any accounting facts by hiding debts behind assets or costs behind revenue. Principle of Non-Compensation – “Compensation' here refers to offsetting accounts. Another accountant looking at the books should reach the same conclusions. Principle of Permanence of Methods – Like any other science, completed accounting should be replicable. All financial information and analysis is presented as fairly and accurately as possible. Principle of Sincerity – This means that the accountant preparing the report isn't trying to mislead anyone. GAAP for one aspect of your reporting, don't switch to International Financial Reporting Standards (IFRS) later on. Principle of Consistency – Ensures that the system used is employed universally. Principle of Regularity – Mandates that accountants use a system for reporting and don't just make it up as they go along. These ten principles-which you can think of as the GAAP mission statement-are the backbone of GAAP. The best way to understand GAAP requirements is to look at the ten guiding principles of GAAP reporting. I'm going to make this as clear as possible, but take a deep breath before we dive in. The system was most recently revamped in 2008 when the FASB reorganized the rules to make them easier to understand.ĭespite this, the principles aren't easy to understand. since 1939, when Congress responded to the Great Depression by increasing oversight of private business. Iterations of the GAAP have existed in the U.S. Rather than being managed by the SEC, however, the GAAP are defined by the Financial Accounting Standards Board (FASB), a non-government entity the SEC has outsourced standardization to. What are the Generally Accepted Accounting Principles?īased on two securities acts passed in the 1930s, the SEC is in charge of ' the methods to be followed in the preparation of accounts and the form and content of financial statements to be filed under the Acts.'

What exactly are GAAP, and how can they help your small business? Even if these specific situations never arise, having a measuring stick that applies to both your business and others can be incredibly helpful.Īll that aside, you won't get very far without a sufficient knowledge base. If you're interested in obtaining investors, selling your business, or opening your books to external parties for any other reason, having GAAP-compliant books-which you're already organizing in your accounting software, right?-can make all the difference. Instead of wondering which system was used in one business and having to massage results to mirror those of another business, GAAP allows direct comparisons. GAAP is an accounting standard allowing businesses to be directly compared to each other.

That's because GAAP requirements don't apply to small businesses, though they can often make small business accounting more valuable. Most small businesses only encounter Generally Accepted Accounting Principles (GAAP) requirements in articles or situations where they are caught off guard and should have already familiarized themselves with them.

US GAAP Generally Accepted Accounting Principles are