GAAP US Accounting Standards
GAAP stands for Generally Accepted Accounting Principles. US GAAP is about the Generally Accepted
Accounting Principles in the United States. The Financial Accounting Standards Board (FASB).
According to the US GAAP, accounting policies are those specific accounting principles and the
methods of applying those principles that are judged by the management of the enterprise to be the
most appropriate in the circumstances to present fairly financial position and results of operations in
accordance with GAAP and that accordingly are adopted for preparing financial statements.
When financial statements are presented, intending to be the fair financial position of the company,
changes in financial position and results of operations in accordance with generally accepted
accounting policies of the organization reporting the statements must be included as an integral part
of the financial statements.
Here are some of the standards of US GAAP
The accounting policies being followed must also be disclosed and should identify and
describe the accounting principles followed by the reporting organization and the methods
While preparing the Profit & Loss Account, accruals and estimated losses, contingent losses
must be included to determine the net income for the year.
According to US GAAP, any item that is normally charged to expense in current year or
future year, cannot be charged against additional paid-in capital.
An enterprise preparing a balance sheet should separate the current assets and current
liabilities. According to the present classification, any asset which can be sold within one
year is a current asset and any liability which can be paid off during one year is a current
Business combinations are those where one or more businesses whether incorporated or
not are brought together to form one accounting entity. The difference in accounting
standards before the combining is reduced by retrospectively applying standard practices.
Companies that issue stock dividends should capitalize retained earnings which is equal to
the fair value of the additional shares issued.
When a company acquires its own shares, the cost of acquiring the shares must be shown as
a deduction from capital. Any gains and loss from sale of treasury stock must be adjusted in
the capital and should not be treated as income.
Dividends received on shares of enterprise’s treasury (treasury stock) must not be treated as
Stock dividends do not give rise to any changes in either the company’s assets or its
shareholders’ proportionate interests therein.
According to US GAAP, operating activities are those activities that are not defined as
investing or financing activities.
Investing activities that include making and collecting loans and acquiring and disposing of
debt or equity instruments and property, plant and equipment and other productive assets
that are held for or used in the production of goods or services by the enterprise.
GAAP encourages companies to show cash flows from operating activities directly by
showing major classes of operating cash receipts and payments.
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