A significant body of generally accepted accounting principles (frequently referred to as U.S. GAAP)
has been created in the United States over many decades to provide
authoritative guidance and standardization for financial accounting.
When faced with a reporting issue, such as a lawsuit, the accountant
consults U.S. GAAP to arrive at an appropriate resolution, one that
results in fair presentation. If both the accountant and the decision
maker understand U.S. GAAP, even the most complex financial information
can be conveyed successfully. A proper likeness can be portrayed and
communicated.
Thus, the
financial information to be distributed by an organization in the form
of financial statements is structured according to U.S. GAAP. This
textbook is an exploration of those accounting principles that serve as
the foundation for financial accounting in this country1.
Based on coverage
here, students who seek to become accountants can learn to report
financial information that is fairly presented. That means that it is
reported according to U.S. GAAP so that it contains no material
misstatements. Students who want to evaluate specific organizations in
order to make decisions about them should learn U.S. GAAP in order to
understand the data being reported.
Although some
elements of U.S. GAAP have been in use almost throughout history, many
of these rules and principles are relatively new—often developed within
the last twenty to thirty years. Accounting principles evolve quite
quickly as the nature of business changes and new issues, problems, and
resolutions arise. Fairly important changes in U.S. GAAP occur virtually
every year.
The existence of
U.S. GAAP means that a business in Seattle, Washington, and a business
in Atlanta, Georgia, will account for information in much the same
manner2. Because of this standardization, any decision maker
with an adequate knowledge of financial accounting—whether located in
Phoenix, Arizona, or in Portland, Maine—should be able to understand the
fairly presented financial information conveyed by a wide variety of
companies. They all speak the same language. Put simply, U.S. GAAP
enables organizations and other parties to communicate successfully.