Sunshine Coast Book Keeping

General Accepted Accounting Principles or GAAP: What does it mean?

Stephanie Paul – Sep 2008

If you have ever inquired about an accounting position at a business, you’ve probably seen the phrase “candidates are required to demonstrate a current knowledge of Generally Accepted Accounting Principles (GAAP).” But, what exactly is GAAP and why is it a mandatory requirement with today’s business accountants?

High quality Sunshine Coast Bookkeeper doesn’t have to be expensive.

The Principles of GAAP

Generally accepted accounting principles, or GAAP for short, are the accounting rules used to prepare and standardize the reporting of financial statements, such as balance sheets, income statements and cashflow statements, for publicly traded companies and many private companies in the United States. GAAP-based income is measured so that the information provided on financial statements is useful to those making economic decisions about a company, such as potential investors and creditors.

GAAP is implemented through measurement principles and disclosure principles. Measurement principles recognize and determine the timing and basis of items that enter the accounting cycle and impact the financial statements, such as the period in which transactions will be recorded.Disclosure principles determine what specific numbers and other information are essential to be presented in financial statements. Basically, GAAP is concerned with:

the measurement of economic activity;

the time when such measurements are to be made and recorded;

the disclosures surrounding this activity; and

the preparation and presentation of summarized economic information in financial statements.

Why GAAP?

Without GAAP, companies would be free to decide for themselves what financial information to report and how to report it, making things quite difficult for investors and creditors who have a stake in that company. Because financial statements prepared under GAAP are intended to reflect an economic reality, GAAP makes a company’s financials comparable and understandable so that investors, creditors and others can make rational investment, credit and other financial decisions. In order to be useful and helpful to users, GAAP requires information on financial statements to be relevant, reliable, comparable and consistent.

Regulating GAAP

Although it is not written in law, the U.S. Securities and Exchange Commission (SEC) requires publicly traded companies and other regulated companies to follow GAAP for financial reporting. Although smaller companies are not required to use GAAP, there are certain situations, such as obtaining credit or seeking investors, which require, by contract, those companies to also follow GAAP when preparing their financial statements.

The SEC does not set GAAP; GAAP is primarily issued by the Financial Accounting Standards Board (FASB). Government entities, however, must follow a different set of GAAP standards as determined by the Governmental Accounting Standards Board (GASB).

How to Apply GAAP

Accountants apply GAAP through FASB pronouncements called Financial Accounting Standards (FASs). Since its formation in 1973, the FASB has issued over 100 formal FAS pronouncements. Before the FASB was formed, its predecessor, the Accounting Principles Board (APB), issued 31 opinions between 1959 and 1973. The APB was preceded by the Committee on Accounting Procedure, which issued 51 pronouncements known as Accounting Research Bulletins (ARBs) from 1939 to 1959. Some of the APB opinions and ARBs are still in force today.

Although the rules found in the formal pronouncements of the FASB and its predecessors are the main sources of GAAP, GAAP rules are also found in statements from the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants; pronouncements by expert accountants; and other practices that are not found in formal pronouncements but are generally accepted because they represent a common practice in a particular industry. For example, there is a general assumption that financial statements must be based on the premise that a company will continue in existence unless there is substantial evidence to the contrary.

Because of the myriad of GAAP sources, accountants must rely on their own knowledge and professional judgment when deciding how the GAAP concepts should be interpreted and applied.

Why Should I Know GAAP?

If you have anything to do with the financial reporting of a company or government entity, you should understand the principles of GAAP. However, if you are simply preparing your individual income tax statements, understanding GAAP probably isn’t as important to you.

Usually, financial statements prepared for income tax purposes are significantly different than statements prepared under GAAP, mainly because they each measure income differently. The FASB measures GAAP-based income so that the information provided is useful to those making economic decisions (i.e., investors and creditors). The IRS, on the other hand, uses income tax reporting to achieve social and economic objectives, such as reducing unemployment and encouraging investment in capital assets.

The following Web sites give more information and new announcements on GAAP:

Financial Accounting Standards Board – www.fasb.org

U.S. Securities and Exchange Commission – www.sec.gov

American Institute of Certified Public Accountants – www.aicpa.org

As with any accounting matter, you should always discuss accounting issues with your certified public accountant.

Related Articles

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General Accepted Accounting Principles or GAAP: What does it mean?

Stephanie Paul – Sep 2008

If you have ever inquired about an accounting position at a business, you’ve probably seen the phrase “candidates are required to demonstrate a current knowledge of Generally Accepted Accounting Principles (GAAP).” But, what exactly is GAAP and why is it a mandatory requirement with today’s business accountants?

High quality Sunshine Coast Bookkeeper doesn’t have to be difficult to manage.

The Principles of GAAP

Generally accepted accounting principles, or GAAP for short, are the accounting rules used to prepare and standardize the reporting of financial statements, such as balance sheets, income statements and cashflow statements, for publicly traded companies and many private companies in the United States. GAAP-based income is measured so that the information provided on financial statements is useful to those making economic decisions about a company, such as potential investors and creditors.

GAAP is implemented through measurement principles and disclosure principles. Measurement principles recognize and determine the timing and basis of items that enter the accounting cycle and impact the financial statements, such as the period in which transactions will be recorded.Disclosure principles determine what specific numbers and other information are essential to be presented in financial statements. Basically, GAAP is concerned with:

the measurement of economic activity;

the time when such measurements are to be made and recorded;

the disclosures surrounding this activity; and

the preparation and presentation of summarized economic information in financial statements.

Why GAAP?

Without GAAP, companies would be free to decide for themselves what financial information to report and how to report it, making things quite difficult for investors and creditors who have a stake in that company. Because financial statements prepared under GAAP are intended to reflect an economic reality, GAAP makes a company’s financials comparable and understandable so that investors, creditors and others can make rational investment, credit and other financial decisions. In order to be useful and helpful to users, GAAP requires information on financial statements to be relevant, reliable, comparable and consistent.

Regulating GAAP

Although it is not written in law, the U.S. Securities and Exchange Commission (SEC) requires publicly traded companies and other regulated companies to follow GAAP for financial reporting. Although smaller companies are not required to use GAAP, there are certain situations, such as obtaining credit or seeking investors, which require, by contract, those companies to also follow GAAP when preparing their financial statements.

The SEC does not set GAAP; GAAP is primarily issued by the Financial Accounting Standards Board (FASB). Government entities, however, must follow a different set of GAAP standards as determined by the Governmental Accounting Standards Board (GASB).

How to Apply GAAP

Accountants apply GAAP through FASB pronouncements called Financial Accounting Standards (FASs). Since its formation in 1973, the FASB has issued over 100 formal FAS pronouncements. Before the FASB was formed, its predecessor, the Accounting Principles Board (APB), issued 31 opinions between 1959 and 1973. The APB was preceded by the Committee on Accounting Procedure, which issued 51 pronouncements known as Accounting Research Bulletins (ARBs) from 1939 to 1959. Some of the APB opinions and ARBs are still in force today.

Although the rules found in the formal pronouncements of the FASB and its predecessors are the main sources of GAAP, GAAP rules are also found in statements from the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants; pronouncements by expert accountants; and other practices that are not found in formal pronouncements but are generally accepted because they represent a common practice in a particular industry. For example, there is a general assumption that financial statements must be based on the premise that a company will continue in existence unless there is substantial evidence to the contrary.

Because of the myriad of GAAP sources, accountants must rely on their own knowledge and professional judgment when deciding how the GAAP concepts should be interpreted and applied.

Why Should I Know GAAP?

If you have anything to do with the financial reporting of a company or government entity, you should understand the principles of GAAP. However, if you are simply preparing your individual income tax statements, understanding GAAP probably isn’t as important to you.

Usually, financial statements prepared for income tax purposes are significantly different than statements prepared under GAAP, mainly because they each measure income differently. The FASB measures GAAP-based income so that the information provided is useful to those making economic decisions (i.e., investors and creditors). The IRS, on the other hand, uses income tax reporting to achieve social and economic objectives, such as reducing unemployment and encouraging investment in capital assets.

The following Web sites give more information and new announcements on GAAP:

Financial Accounting Standards Board – www.fasb.org

U.S. Securities and Exchange Commission – www.sec.gov

American Institute of Certified Public Accountants – www.aicpa.org

As with any accounting matter, you should always discuss accounting issues with your certified public accountant.

Related Articles

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By: Michelle Barkley

Accounting means handling of accounting tasks and its related stuff with utmost care. It is such department that every business or firms have to make a careful look on this. Accounting is one such department which every company has to maintain. The methods and techniques keeps changing in the accounts to make it work well for an organization. Accounting outsourcing is one such business method that can help you to make your business flourish well. For this, you need to manage your book records till you finish up paying taxes for a financial year. Not only this, you have to keep the records safely for future reference as well because at any point of time you can be in need of such information. By adopting outsourcing for your business, you can relief from a tedious task of accounting.

High quality Sunshine Coast Bookkeeper doesn’t have to be difficult to manage.

Every company dreams to prosper well in its business specialization and for this they have to struggle hard to make some unique techniques that makes them different from others in the crowd. Proper and regular maintenance of accounting task will surely help them in survive longer in their business. To survive in such a world where there is extreme competition in the business world is a tough task. To make big money businesses or firms do cost cut plans and endow the saved money in the growth plans of their company. If the firm in-house employees for maintaining its accounting task, then it can prove costly for them. They will have to pay big money to the accounts professional along with having tensions for careful handling of accounting task. A slight mistake in accounting can lead to shut down of their business. Accounting outsourcing can really prove magic wand to keep your business away from such intricacies.

So to keep the business safe, accounting outsourcing can be the most successful strategy to make your business outstanding. You can outsource the complete accounting task from a reputed vendor. It will save a big portion of your revenue and you will get best quality work in your defined time. The increasing amount of work pressure on accounting tasks has given a special place for its work to get it executed through outsourcing. Be it accounting or any kind of business specialization, outsourcing is popular as an effective tool and being successful in solving various kinds of problems and giving you customized business solutions. You just have to hand over your entire work to a known company that can efficiently handle your work on your behalf. Before transferring your work, do some homework to know about the records of the firm whom you are going to hire. Accounting outsourcing process is intended to transfer your entire accounting task to an offshore destination.

By adopting accounting outsourcing for your business, you will not have to hire accounts professionals at your own and to establish a separate department. Thus, you can save some money for your business. The accounting task deals with treasury back-office services, bookkeeping, general ledger, tax computation and filing, data entry, spreadsheet and many others. The vendor does your work with utmost professionalism and you can relieve of keeping your data at safe hands.

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By: Michelle Barkley

Accounting means handling of accounting tasks and its related stuff with utmost care. It is such department that every business or firms have to make a careful look on this. Accounting is one such department which every company has to maintain. The methods and techniques keeps changing in the accounts to make it work well for an organization. Accounting outsourcing is one such business method that can help you to make your business flourish well. For this, you need to manage your book records till you finish up paying taxes for a financial year. Not only this, you have to keep the records safely for future reference as well because at any point of time you can be in need of such information. By adopting outsourcing for your business, you can relief from a tedious task of accounting.

High quality Sunshine Coast Bookkeeper shouldn’t be difficult to manage.

Every company dreams to prosper well in its business specialization and for this they have to struggle hard to make some unique techniques that makes them different from others in the crowd. Proper and regular maintenance of accounting task will surely help them in survive longer in their business. To survive in such a world where there is extreme competition in the business world is a tough task. To make big money businesses or firms do cost cut plans and endow the saved money in the growth plans of their company. If the firm in-house employees for maintaining its accounting task, then it can prove costly for them. They will have to pay big money to the accounts professional along with having tensions for careful handling of accounting task. A slight mistake in accounting can lead to shut down of their business. Accounting outsourcing can really prove magic wand to keep your business away from such intricacies.

So to keep the business safe, accounting outsourcing can be the most successful strategy to make your business outstanding. You can outsource the complete accounting task from a reputed vendor. It will save a big portion of your revenue and you will get best quality work in your defined time. The increasing amount of work pressure on accounting tasks has given a special place for its work to get it executed through outsourcing. Be it accounting or any kind of business specialization, outsourcing is popular as an effective tool and being successful in solving various kinds of problems and giving you customized business solutions. You just have to hand over your entire work to a known company that can efficiently handle your work on your behalf. Before transferring your work, do some homework to know about the records of the firm whom you are going to hire. Accounting outsourcing process is intended to transfer your entire accounting task to an offshore destination.

By adopting accounting outsourcing for your business, you will not have to hire accounts professionals at your own and to establish a separate department. Thus, you can save some money for your business. The accounting task deals with treasury back-office services, bookkeeping, general ledger, tax computation and filing, data entry, spreadsheet and many others. The vendor does your work with utmost professionalism and you can relieve of keeping your data at safe hands.

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Posted by: Jason Cawley

There is a fun article in the August 12 Science, “Khipu Accounting in Ancient Peru”, that turns on spotting relationships and patterns in data from knotted cords, that I thought might be of some interest. Computers are assisting archeology in unexpected ways, it appears. The article is on page 1065.

Accounting can be complex at the best of times, get some experience on your accounts from Sunshine Coast Bookkeeping.

The researchers are Gary Urton and Carrie Brezine from Harvard. Here is their abstract -

Khipu are knotted-string devices that were used for bureaucratic recording and communication in the Inka Empire. We recently undertook a computer analysis of 21 khipu from the Inka administrative center of Puruchuco, on the central coast of Peru. Results indicate that this khipu archive exemplifies the way in which census and tribute data were synthesized, manipulated, and transferred between different accounting levels in the Inka admininstrative system.

There is a related article on page 1008 giving an overview of their results. They also have a website, here -

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Basic Bookkeeping Tips

Posted by Unknown under Book Keeping category at Sep, 22 2009, No Comments

For many small businesses, the most common bookkeeping errors are also the easiest to fix. Use these six tips to help keep your business on sound financial footing.

For the best accounting services contact Darcy Services from Sunshine Coast Book Keeping.

[...]

Four Basic Rules for Small-Business Bookkeeping

Posted by Darla Dernovsek under Book Keeping category at Sep, 22 2009, No Comments

When you run your own business, keeping your books up-to-date is essential. One missed entry could mean disaster. These tips can help keep you on track.

[...]

Why accounting software is a must-have for most businesses

Posted by Joseph Anthony under Book Keeping category at Sep, 22 2009, No Comments

In my business as a tax professional, I’ve seen only one business client in the past six years who has come to me with all of her income and expense statements written out by hand.

[...]

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Need Professional Help? Talk to a Lawyer

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Many new business owners are daunted by the mere idea of bookkeeping and accounting. But in reality, both are pretty simple. Keep in mind that bookkeeping and accounting share two basic goals:

For the best book keeping services talk to Darcy Services from Sunshine Coast Book Keeping.

to keep track of your income and expenses, which improves your chances of making a profit, and

to collect the financial information necessary for filing your various tax returns.

There is no requirement that your records be kept in any particular way. As long as your records accurately reflect your business’s income and expenses, the IRS will find them acceptable. (There is a requirement, however, that some businesses use a certain method of crediting their accounts: the cash method or accrual method. For more information, see Nolo’s article Cash vs. Accrual Accounting .)

Depending on the size of your business and amount of sales, you can create your own ledgers and reports, or rely on accounting software.

Three Steps to Keeping Your Books

The actual process of keeping your books is easy to understand when broken down into three steps.

Keep receipts or other acceptable records of every payment to and every expenditure by your business.

Summarize your income and expenditure records on some periodic basis (daily, weekly, or monthly).

Use your summaries to create financial reports that will tell you specific information about your business, such as how much monthly profit you’re making or how much your business is worth at a specific point in time.

Whether you do your accounting by hand on ledger sheets or use accounting software, these principles are exactly the same.

Step One: Keeping Your Receipts

Each of your business’s sales and purchases must be backed by some type of record containing the amount, the date, and other relevant information about that sale. You’ll use these to create summaries of your transactions.

From a legal point of view, your method of keeping receipts can range from slips kept in a cigar box to a sophisticated cash register hooked into a computer system. Practically, you’ll want to choose a system that fits your business needs. For example, a small service business that handles only relatively few jobs may get by with a bare-bones approach. But the more sales and expenditures your business makes, the better your receipt filing system needs to be.

Step Two: Setting Up and Posting to Ledgers

A completed ledger is really nothing more than a summary of revenues, expenditures, and whatever else you’re keeping track of (entered from your receipts according to category and date). Later, you use these summaries to answer specific financial questions about your business, such as whether you’re making a profit and, if so, how much.

Post receipts on a regular basis. On some regular basis — like every day, once a week, or at least once a month — you should transfer the amounts from your receipts for sales and purchases into your ledger. This is called posting. How often you do this depends on how many sales and expenditures your business makes, and how detailed you want your books to be.

Your posting schedule depends on your sales numbers. Generally speaking, the more sales you do, the more often you should post to your ledger. A retail store, for instance, that does hundreds of sales amounting to thousands of dollars every day should post daily. With that volume of sales, it’s important to see what’s happening every day and not to fall behind with the paperwork. To do this, the busy retailer should use a cash register that totals and posts the day’s sales to a computerized bookkeeping system at the push of a button.

A slower business, however, or one with just a few large transactions per month, such as a small website design shop, dog-sitting service, or swimming pool repair company, would probably be fine if it posted weekly or even monthly.

If possible, use accounting software. You can purchase an accounting software program that will generate its own ledgers as you enter your information (and then automatically generate the necessary financial reports from the same information). All but the tiniest new business are well advised to use an accounting software package to help keep their books. Micro-businesses can get by with personal finance software such as Quicken.

Step Three: Creating Basic Financial Reports

Financial reports are important because they bring together several key pieces of financial information about your business. Think of it this way: while your income ledger may tell you that your business brought in a lot of money during the year, you won’t know if you turned a profit without measuring your income against your total expenses. And even comparing your monthly totals of income and expenses won’t tell you whether your credit customers are paying fast enough to keep adequate cash flowing through your business to pay your bills on time.

That’s why you need financial reports: to combine data from your ledgers and sculpt it into a shape that shows you the big picture of your business. The key reports you need to create regularly are a cash flow analysis, a profit and loss forecast, and a balance sheet. (Both QuickBooks and Quicken Home and Business, as well as other accounting software, can provide these regular reports.)

Next Step

If you are ready to start your own business, get all the information you need, including tips on accounting and bookkeeping with Nolo’s Quicken Legal Business Pro — a complete business library on your desktop, featuring five Nolo business books, over 140 forms, and a dozen ‘how to’ checklists.

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Single Entry Is Simple While Double Entry Bookkeeping May Be The Only Option

by: Terry Cartwright

The difference between bookkeeping services and accounting may be unclear to the uninitiated while both are of vital importance to financial success. Bookkeeping is an important part of the accounting function and is essentially the record keeping of the financial transactions. Accounting is while incorporating the record keeping also includes the presentation, interpretation and financial control functions including interpretation of the numbers for the financial health of a business of which taxation can play a major part.

For the best accounting service contact Darcy Services from Sunshine Coast Book Keeping.

Bookkeeping stems from the recording of financial transactions and the accounting term for a business accounts as books. In effect the accounting function prepares a record of the monetary affairs of a business and stores the information in files called books. Hence the term bookkeeping often misspelled as book keeping which is the function of a librarian not that of a bookkeeper.

The financial affairs of a business involve many aspects and start with the recording of what is termed the prime documents. The task of a bookkeeping service which some businesses outsource is to record the prime documents, those prime documents being the sales, purchases and cash/bank transactions. All small businesses do bookkeeping and the most successful use the bookkeeping records as a basis for an accounting function to generate a more efficient financial service.

All business involves buying or selling something and the consequent function of receiving or paying money to the value of those transactions. Recording these transactions in larger business organisations is done by accounts clerks who work under the supervision of the accountant.

Invariably medium and larger businesses use a double entry system for recording transactions. Double entry accounting evolves from the fact that every transaction as a double effect on the business of which these are prime examples.

A sale is made. That creates a record of income for the business which is taxed on that income the other side of the financial transaction, the double entry, is the fact that the organisation who was sold the goods now owes the value of that sales invoice to the business. That is the double entry, record the sales income and also record the debt due from the customer who is now called a debtor.

Someone who owes the business a debt is called a debtor.

A purchase is made. That creates a record of expense for the business which can be deducted from income and lowers taxes and the other side of the financial transaction, the double entry, is the fact that the organisation who supplied the purchase on credit is now owed the money. That is the double entry, record the sales income and also record the credit due to the supplier who is now called the creditor.

Someone who has supplied goods on credit is called a creditor.

The third type of prime transaction is the transfer of money between the debtors and creditors and the business.

When a debtor pays his sales invoice the double entry is to add that amount of money to the business financial records and the opposite double entry goes to the debtor account to reduce the amount owed to the business since it has now received the cash.

When a creditor is paid the amount owed the money is recorded as reducing the cash resources of the business by for example deducting the money from the bank balance and the double entry reduces the amount the business now owes to the creditor account since it has reduced the credit received.

The bookkeeping function is to record these prime transactions. Since every financial transaction has an equal and opposite entry in the books there has to be a mathematical check that both sides of the transactions add up to zero. This check process is called a trial balance where both sides of the entries should be in agreement and normally the point at which the bookkeeping service is deemed to be complete.

Double entry bookkeeping is required for all businesses that require to produce a statement of its assets and liabilities. This statement of assets and liabilities is the total of all the balances from the trial balance and is called a balance sheet.

Many small businesses do not require a balance sheet. In the UK the production of a balance sheet is optional for every self employed business as it is not an obligatory requirement of the self assessment tax return form. A self employed bookkeeping system is not required to produce a balance sheet because the business effectively belongs to the owner and is that owners personal business.

Limited companies must produce a balance sheet under various financial acts and submit the balance sheet to both Companies House and the tax authority each year. The different rules applying to a limited company is because the accounts including the balance sheet are public records available to the members of that company and not necessarily the property of a single individual or partnership.

The self employed bookkeeping system can be simpler being produced from a single entry style of bookkeeping rather than double entry. Single entry bookkeeping makes a single entry for each financial transaction which is sufficient to produce an income and expenditure account, a profit and loss account, but does not make the reciprocal entry that establishes the value of the assets and liabilities.

Single entry can be as simple as making a list of the sales income and the purchase expenses. Such a bookkeeping system is valuable to the smaller business as it requires little or no bookkeeping or accounting knowledge. A smaller business can produce its own accounts without the need for a bookkeeper or accountant particularly if it has access to bookkeeping templates through bookkeeping software to produce the accounts in the accounting format required.

About The Author

Terry Cartwright,qualified accountant and CEO at DIY Accounting in the UK designs accounting software http://www.diyaccounting.co.uk/smallbusinessaccounting.htm on excel spreadsheets providing complete single and double entry bookkeeping systems

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Accounting

Book Keeping is an activity concerned with the recording of financial data relating to business operations in an orderly manner. Book-keeping is the recording phase of accounting. Further, book keeping is that branch of knowledge which tells us how to keep a record of financial transactions. The need for recording such transactions arise because (i) it is difficult to remember the various financial payments and receipts taking place during a period of time; (ii) in modern forms of business organizations the control of business rests with different persons and the results are to be reported to the owners; (iii) the financial information is, required for the purpose of costing, budgeting, forecasting and planning; and (iv) book-keeping records are to be submitted to various government agencies like income tax and sales tax authorities for taxation purposes.

For the best accounting services contact Darcy Services from Sunshine Coast Book Keeping.

Definition of Book-keeping

Kohler, Eric : Book-keeping is the process of analyzing, classifying and recording transactions in accordance with a preconceived plan for the purpose of Providing a means by which an enterprise may be conducted in an orderly fashion and Establishing a basis for recording and reporting the financial affairs of an enterprise and the results of its operations.

Batliboi, J.R. : Book-keeping is the art of recording business dealings in a set of books.

Carter, R.N. : Book-keeping is the science and art of recording correctly in the books of accounts all those business transactions that result in the transfer of money or money’s worth.

Rosenkampff A.H. : Book-keeping is the art of recording business transaction in a systematic manner.

Cropper, L.C. : Book-keeping is the science of recording transactions in money or money’s worth in such a manner that, at any subsequent day, the nature and effect of each transaction, and the combined effect of the transactions, may be clearly understood so that the accounts prepared at any time from the records thus kept may show the owner of the books his true financial position.

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