Accounting Principles

If everyone involved in accounting, followed their own systems, or none at all, there is no way to really speak of a company is profitable or not. Most companies follow what is known as generally accepted accounting principles, or GAAP, and there are huge tomes in the library and book stores dedicated to just that one topic. Unless another company States, anyone can read financial statements makes the assumption that the company GAAP has been used.

As generally accepted accounting principles, the principles that have been used to prepare financial statements, and then a company needs to clarify any other form of recognition they normally and depending not use titles in its financial statements by the person to whom the research are likely to mislead.

GAAP is gold standard for the preparation of financial statements. Not disclose the fact that these principles than GAAP has used, makes a company legally responsible for any misleading or misinterpreted data. These principles have refined for decades and effectively has headed the accounting methods and financial reporting system of the company. Different principles are set for different types of business entities, for-profit and non-profit businesses, Governments and other companies.

GAAP, however, is not a clear agreement. The guidelines and as such are often open to interpretation. Estimates should be made at the time, and faith efforts towards accuracy is required. You've probably heard the expression "creative accounting" and that is when a company pushing the envelope a little (or much) of their businesses more profitable than it would in fact see to do. This is also known as massaging the numbers. This may not be under control and quickly turn to accounting fraud, also known as cooking books. The results of these methods can be devastating and ruin of hundreds and thousands of lives, as in the case of Enron, Rite-Aid, and others.

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