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About GAAP in accounting

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



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