GAAP stands for Generally Accepted Accounting Principles

Companies that owe considerable amounts of money to customers, known as accounts receivable, are required to report the likelihood that one or more of that cash may not be paid and will result in income being forfeited. Some assets, including real estate, equipment, and facilities, are valued at their original acquisition costs rather than their current market values, which is known as historical cost accounting.īad debts must be reported.

For instance, an item with a 10-year life is accounted during at a rate of 10% for the first ten years of its existence.Ĭosts from the past are being reported. Large-scale asset acquisitions incur costs that must be accounted for across the asset’s entire useful life. Under GAAP, revenue is reported when a service or goods is sold, rather than when pay is collected direct expenses for sales made are recorded when a sale is completed, and indirectly expenses are recorded when payments for expenses are received.ĭegradation and capital expenditures are two types of expenses. GAAP was established in the 1970s and consists of the four major rules and standards listed below: Generally accepted accounting principles (GAAP) are intended to ensure that accounting information is clear and accountable from one public organization to another, as well as from one accounting period to another. Specifications for generally accepted accounting principles (GAAP) include meanings of concepts and principles as well as sector rules. In accounting, GAAP (generally accepted accounting principles) refers to a collection of accounting rules and standards that are widely followed in the financial reporting industry.

GAAP stands for Generally Accepted Accounting Principles