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 statement.

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 being followed.

• 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 the 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 liability.

• Business combinations are those where one or more business, whether incorporated or not is 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 are 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 income.

• 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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