Meaning and definition of US GAAP
The Generally Accepted Accounting Principles in the US (US GAAP) refer to the accounting rules used in United States to organize, present, and report financial statements for an assortment of entities which include privately held and publicly traded companies, non-profit organizations, and governments. The term is confined to the US and is, therefore, generally abbreviated as US GAAP. But theoretically, the term "GAAP" covers the entire accounting industry, rather than only the US.
Basic objectives of US GAAP
As a part of US GAAP, the financial reporting should provide information as following:
- The provided info should be apt to be presented to creditors and potential investors in addition to other users for making cogent decisions concerning investment, credit and similar financial activities.
- The provided info should be helpful to the creditors and potential investors in evaluating the amounts, timing, and uncertainty of expected cash receipts.
- The info should be related to economic resources, the claims to those resources, as well as the changes occurring in them.
- The provided info should be helpful in making financial and long-term decisions.
- The information should be helpful in perking up the business performance.
- The information should be helpful in maintaining records.
Basic Assumptions of US GAAP
The US GAAP features four basic assumptions to meet its objectives. These are:
- Accounting Entity
This assumes the business to be a separate entity from its owners as well as other businesses. Moreover, it also stresses on keeping revenue and expense separate from personal expenses.
- Going Concern
This assumption presumes that the business will be indefinitely in operation. This assumption authenticates the methods of amortization, depreciation, and asset capitalization. However, this assumption is not applicable in the event of liquidation.
- Monetary Unit Principle
This assumption presumes an unwavering currency to continue to be the unit of record.
- Time-period Principle
While preparing financial statements through the use of GAAP, a large number of American corporations and other business enterprises follow the rules of how to report different business transactions based on the assorted GAAP rules.
This assumption states that a business enterprise’s economic activities can be divided into simulated time periods.