| While many businesses assume that accountants | | | | choose which cost of good sold expense method |
| are bound by generally accepted accounting | | | | to use and which depreciation expense method to |
| practices and that these are inviolate, nothing | | | | use. |
| could be further from the truth. Everything is | | | | For other expenses and for sales revenue, one |
| subject to interpretation, and GAAP is no | | | | general accounting method has been established; |
| different. For one thing, GAAP themselves permit | | | | there are no alternative methods. However, a |
| alternative accounting methods to be used for | | | | business has a fair amount of latitude in actually |
| certain expenses and for revenue in certain | | | | implementing the methods. One business applies |
| specialized types of businesses. For another, | | | | the accounting methods in a conservative |
| GAAP methods require that decisions be made | | | | manner, and another business applies the methods |
| about the timing for recording revenue and | | | | in a more liberal manner. The end result is more |
| expenses, or they require that key factors be | | | | diversity between businesses in their profit |
| quantified. Deciding on the timing of revenue and | | | | measure and financial statements than one might |
| expenses and putting definite values on these | | | | expect, considering that GAAP have been |
| factors require judgments, estimates and | | | | evolving since 1930. |
| interpretations. | | | | The pronouncement on GAAP prepared by the |
| The mission of GAAP over the years has been | | | | Financial Accounting Standards Board (FASB) is |
| to standardize accounting methods in order to | | | | now more than 1000 pages long. And that doesn't |
| bring about uniformity across all businesses. But | | | | even include the rules and regulations issued by |
| alternative methods are still permitted for certain | | | | the federal regulatory agency that jurisdiction |
| basic business expenses. No tests are required to | | | | over the financial reporting and accounting |
| determine whether one method is more | | | | methods of publicly owned businesses - the |
| preferable than another. A business is free to | | | | Securities and Exchange Commission (SEC). |
| select whichever method it wants. But it must | | | | Matthew Meyer. |