| While many businesses assume that accountants | | | | expense 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, and | | | | established; there are no alternative |
| GAAP is no different. For one thing, GAAP | | | | methods. However, a business has a fair |
| themselves permit alternative accounting | | | | amount of latitude in actually implementing |
| methods to be used for certain expenses and | | | | the methods. One business applies the |
| for revenue in certain specialized types of | | | | accounting methods in a conservative manner, |
| businesses. For another, GAAP methods require | | | | and another business applies the methods in a |
| that decisions be made about the timing for | | | | more liberal manner. The end result is more |
| recording revenue and expenses, or they | | | | diversity between businesses in their profit |
| require that key factors be quantified. | | | | measure and financial statements than one |
| Deciding on the timing of revenue and | | | | might expect, considering that GAAP have been |
| expenses and putting definite values on these | | | | evolving 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 been | | | | is now more than 1000 pages long. And that |
| to standardize accounting methods in order to | | | | doesn't even include the rules and |
| bring about uniformity across all businesses. | | | | regulations issued by the federal regulatory |
| But alternative methods are still permitted | | | | agency that jurisdiction over the financial |
| for certain basic business expenses. No tests | | | | reporting and accounting methods of publicly |
| are required to determine whether one method | | | | owned businesses - the Securities and |
| is more preferable than another. A business | | | | Exchange Commission (SEC). |
| is free to select whichever method it wants. | | | | |
| But it must choose which cost of good sold | | | | Matthew Meyer. |
| expense method to use and which depreciation | | | | |