When it comes to operating a business, understanding your financial obligations is paramount. But let’s be honest; all the jargon and acronyms can be quite daunting, right?
This is where GAAP, or Generally Accepted Accounting Principles, come into play. You might have heard of GAAP, but do you know what it really entails and how it impacts your business? If you’re starting to sweat, don’t worry! We’re here to break down this complex subject into digestible chunks.
This guide is all about researching GAAP effectively, so you can apply it to your business and be confident you’re on the right side of the ledger. Trust us; your balance sheet will thank you!
So, if you’re ready to boost your financial savvy, keep reading.
Let’s face it, finance can be like a foreign language, but we’re here to translate. Generally accepted accounting principles or GAAP is the “grammar” that shapes how US companies communicate their financial story.
These principles are rules, standards, and procedures maintained by the Financial Accounting Standards Board (FASB) that companies follow when compiling their financial statements. Think about it like the rules of a board game; it ensures everyone is playing fairly and is on the same page.
GAAP covers such things as revenue recognition, balance sheet item classification, and outstanding share measurements. Essentially, it’s there to ensure that companies can’t just make up their own rules about reporting income or expenses. So, when you’re comparing company financials, GAAP makes it more like comparing apples to apples rather than apples to oranges.
It’s important for you to research GAAP thoroughly because it can help you maintain transparency, avoid legal issues, and build trust with investors and stakeholders. It really is the secret sauce to financial reporting! Isn’t it nice when we can cut through the jargon? Now you’re one step closer to being a GAAP pro.
Decoding the GAAP Hierarchy
If you’ve ever wondered how the GAAP (Generally Accepted Accounting Principles) is structured, think of it like a treasure hunt. The ‘treasure’ here is the financial reporting standards you need, and GAAP has laid them out neatly in a hierarchy.
The top of the hierarchy holds the most valuable gems, like Statements by the Financial Accounting Standards Board (FASB) and Accounting Research Bulletins plus Accounting Principles Board opinions by the American Institute of Certified Public Accountants (AICPA).
Dig deeper if that doesn’t give you the answer you’re seeking. You’ll find FASB Technical Bulletins and Audit and Accounting Guides, plus Statements of Position.
Still no luck? Venture further to discover AICPA Accounting Standards Executive Committee Practice Bulletins and positions of the FASB Emerging Issues Task Force (EITF).
At the fourth level, you’ll find, AICPA Accounting Interpretationspractices accounting and AICPA Industry Audit and Accounting Guides. Not to forget, Statements of Position not cleared by the FASB.
Finally, you reach the base of the structure, where you’ll find accounting practices widely accepted and followed.
The brilliant minds at FASB encourage accountants to find information from the top of the hierarchy first. But if they hit a wall, they’re free to dig deeper. Check out the FASB’s Statement of Financial Accounting Standards No. 162 source for a more thorough explanation.
So, when researching GAAP, remember—it’s all about starting at the top and working your way down!
Where You Can Research GAAP
Now, if you’re knee-deep in the finance world, you know that understanding GAAP is not just beneficial. It’s crucial. Let’s explore the best ways to research GAAP.
The Financial Accounting Standards Board (FASB) is our first port of call. They offer free online access to the Accounting Standards Codification at asc.fasb.org. This is the only authoritative source for US GAAP, so it’s a must-visit site. The best part? Anyone can access the codes using a basic account.
For those of you working at companies subject to GAAP rules, check with your company, as they likely have a professional account, which opens up even more advanced research features!
But wait, there’s more! The American Institute of Certified Public Accountants (AICPA) also provides access to authoritative literature to supplement your GAAP Hierarchy research.
In addition to these direct sources, you can also check out academic databases such as JSTOR or EBSCO. They often contain a wealth of research papers on specific GAAP principles and their application.
And never underestimate the power of a good old-fashioned book. Check out “Wiley GAAP: Interpretation and Application of Generally Accepted Accounting Principles” for an in-depth and approachable guide.
Researching GAAP can seem daunting, but with the right resources, it becomes much easier. So, roll up your sleeves and dive right in. Happy researching!
Researching GAAP Through FASB
FASB has organized the Accounting Standards Codification into numbered codes. It can be difficult to navigate initially, so let’s walk through it.
First, navigate to asc.fasb.org. Select Basic View unless you have access to a professional view. Once logged in, the sections will be located on the left side of the screen. Hover over the sections, and the individually numbered codes will appear.
In this case, let’s say you want to review ASC 606 for contract revenue. Once you click on that code from the main screen, it will take you to the table of contents for that code.
You can select the part of the code you want to research from here. Clicking on general brings us to the purpose of the code and what information we can find.
In addition to the Accounting Standards Codes, the FASB website also has many other resources, including determinations that may be helpful.
Frequently Asked Questions
GAAP Versus IFRS
GAAP is based on the US Generally Accepted Accounting Principles, while IFRS is International Financial Reporting Standards. Though each has different accounting principles, both are focused on ensuring that financial records are accurate and transparent.
Do I Need to Know GAAP?
Yes! GAAP is important for all businesses, regardless of size or industry. Understanding and applying the principles when preparing your financial statements is essential so you can accurately report your company’s performance.
How Do I Stay Up-To-Date On GAAP?
The FASB website is constantly updated with new information related to GAAP, so be sure to check in regularly. Additionally, subscribing to professional organizations such as the American Institute of Certified Public Accountants (AICPA) is a great way to stay up-to-date on any changes or updates.
What Are Some Common GAAP Requirements?
Some common GAAP requirements include accurate financial reporting, proper disclosure of information, consistency in accounting practices, and using customary methods for recognizing revenue. Additionally, businesses must comply with accounting standards when preparing their financial statements.
In the world of finance and accounting, GAAP is more than just a fancy acronym – it’s the cornerstone of transparent and accurate financial reporting. It’s a system designed for US businesses of all sizes and industries, so if you’re running a company, understanding GAAP isn’t just recommended, it’s essential.
But don’t worry; plenty of online resources, like the FASB website and professional organizations like AICPA, keep you updated with any changes.
Remember, GAAP isn’t just about the numbers; it’s also about consistency, proper disclosure, and customary methods for recognizing revenue. So, to all business owners, keep researching GAAP, stay informed, and keep those financial statements accurate and transparent!
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