What is GAAP?
GAAP stands for Generally Accepted Accounting Principles. Despite its funny name, it is a very important idea for investors and companies alike. Basically, GAAP is a set of principles, standards, and procedures that companies agree upon in order to report their financial data. Some standards must be adhered to, such as those set by certain boards, and others are just commonly used standards that have become commonplace in these statements.
What are the components of GAAP?
GAAP includes hundreds of different components, but here are a few of the most important:
* Inventory costs
* Stockholders' equity
* Short-term investments
* Long-term investments
* Revenues and Sales
* Goodwill and other intangibles
Why is GAAP important?
Companies that use GAAP when making their reports will have mostly consistent ways of displaying the data. As a result, it is easier to find what you need, and more difficult for the company to trick you or misrepresent their figures. GAAP covers many different aspects of the financial reports, giving the companies a template and making your effort to read them easier.
The basic concepts of accounting as we understand them today were first published in Italy in 1494 by Luca Pacioli (1445 - 1517.) He described them in a section of his book on applied mathematics entitledSumma de Arithmetica, geometria, proportioni et Proportionalita. Pacioli was a Franciscan monk whose life and work was dedicated to the glory of God.
Accounting is the process of measuring and recording the financial value of the assets and liabilities of a business and monitoring these values as they change with the passage of time. When we refer to abusiness we could be referring to an individual, a company or any other entity for which accounting records are to be kept (for example a church, club or other non-profit organisation.)
The assets of a business are those things that belong to the...