GAAP: What are Generally Accepted Accounting Principles?

Every business requires bookkeepers or at a minimum someone to do the bookkeeping work. The books of any business tell a story. The story reflects how many sales a company has, what their expenses are, and any assets and obligations that the company might have.

If you are interested in becoming an accountant or bookkeeper then starting a vocational program may be right for you. Don’t worry if you are not up to date on standard accounting principles like GAAP. The good news is you learn all about bookkeeping and accounting in a vocational program.

What to Expect from an Accounting Program?

When you enter an accounting program at a vocational school, you learn how to use the tools to complete your accounting role. You will learn how to use the latest and most popular accounting software packages like QuickBooks. To keep up with the latest technologies, you will also get hands-on experience with all the latest office automation equipment and services. Of course, since you will be looking for an accounting job when you graduate, there will be an emphasis on understanding GAAP (Generally Accepted Accounting Principles) and how the principles are important on the job. If you pursue an Associates Accounting Degree, you will learn more thoroughly GAAP, along with cost accounting, and federal tax requirements.

What Are Generally Accepted Accounting Principles?

GAAP is a set of rules, guidelines, and principles that you will use to manage the accounting functions while at an organization. GAAP relates to financial instruments including financial statements, liabilities, assets, equities, revenue, and expenses. Most of the financial instruments that you will use on the job in an accounting role.

There are important principles about GAAP that you will learn during a vocational program. GAAP states that the business owner’s activities must be kept separate from the financial institution’s activities. GAAP assumes that all transactions are completed in US Dollars. Also, all information that is relative to the business must be disclosed in financial statements. GAAP require businesses to use the accrual basis of accounting and match business income to business expenses in a set period of time. The revenue of a company must also be reported in the period that it was earned. These are some of the many principles of GAAP accounting.

Did you know that all public companies, those with stock shares that are bought and sold on the stock market in the United States, must produce financial reports that comply with GAAP? These are a set of standards regulated by the Financial Accounting Standards Board (FASB). These requirements may be in place through opinions and proclamations issued by accounting policy boards or just accounting practices that have been informally and uniformly agreed to over the course of time.

What Are the Benefits of GAAP for Bookkeepers?

There are many benefits to learning General Accepted Accounting Principles in accounting. These benefits include:

Intend to Comply

Understanding GAAP tells employers that you will comply with these principles and abide by the GAAP rules and regulations. These principles state that you will disclose both negative and positive financial information. This increases your credibility within the organization.

Staying Consistent

Using GAAP will allow you to improve the consistency of the company’s financial information and accounting records. Anyone that looks at the books will understand your approach and it will never change over time. Having a consistent approach will also make your job easier, as you practice GAAP you will become a master of your domain. This will also help you avoid errors or discrepancies.

Offer Perspective

Since Generally Accepted Accounting Principles is reported in short time intervals like weeks, months, quarters or years, you have more flexibility to identify trends in the data and better project budgets.

Planning for the Future

Once you learn GAAP, you may identify trends over time that you didn’t see in the past. Having the ability to anticipate the company’s finances will allow you to shine in your bookkeeping role. Employers enjoy a bookkeeper that can plan for the future and help them make accurate budget predictions.

Traveling the World

If you learn accounting according to GAAP, you can practice accounting anywhere in the United States and in many other countries. It can be thought of as a universal accounting principle that travels along with you far and wide.

Benefits of GAAP for Organizations

In addition to the benefits of a bookkeeper, GAAP has many benefits to organizations that you may work at. They include:

Purposes of GAAP

Accounting is the language of business. Accounting principles help to assure that all preparers and users of financial statements are speaking and understanding the same language. For example, revenue is generally the lifeblood of any company, big or small. Revenue is driven by sales of products and services. The time period in which to report revenue is one of the basic principles of accounting. Some industries, like retail, are easier to determine than long-term construction contracts, for example.

Who Uses GAAP Financial Statements

Even though only publicly traded companies are obligated to produce GAAP financial statements, many private companies also use the standards. Private companies can use their financial statements when they are seeking a bank loan or line of credit. Potential investors in a company also appreciate standardized financials statements when they are making investment decisions. With financial statements in accordance with GAAP, they can be compared with one another across time, companies, or industries.

The Securities and Exchange Commission (SEC), an independent agency of the federal government, not only requires that public companies follow GAAP, but that their financial statements are audited by a qualified Certified Public Accountant. Often, private companies will engage an auditor to review their financial statements and issue an opinion. This shows an independent perspective on whether the company and statements are in compliance with GAAP.

Summary of Generally Accepted Accounting Principles

GAAP includes high-level rules that drive the operations of a company at all levels, in all departments, and the production of financial statements. Here are just three of the guidelines commonly viewed as part of Generally Accepted Accounting Principles.

Continuity – One of the predominant themes of the principles is that the company is an “on-going concern.” That is to say that the company is in business to be profitable and to perpetuate its own life.

Consistency – Another dominating feature of the GAAP is consistency. There are two aspects to this principle. First, from one reporting period to the next, the company has been consistent in the way business activity is captured in the sub systems and the general ledger. Second, that from reporting period to reporting period, the company has been consistent in the way business activities and results are reported in the financial statements. Any variations in the reporting need to be noted in the financial statements.

No Compensation – To project the company results and position accurately, accountants are not allowed to be compensated based on the successes or failures of a company’s operations.

The Future for GAAP

Recognizing that the United States and its companies are now participating in a growing global market, the SEC and FASB in the past have worked with the London-based Accounting Standards Board (IASB), which issues International Financial Reporting Standards (IFRS), accounting standards used outside of the United States.

Excluding the U.S., more than 160 counties use the IFRS. The desired outcome of the two sets of principles or standards is the same: transparency and truthfulness in the financial statements issued by publicly traded businesses. The SEC has not indicated that they will require a switch to IFRS but is looking at a proposal to allow IFRS information in addition to the requirements of the U.S. filing requirements. If the U.S. should switch to the more globally accepted standards, an accountant with a working knowledge of the current Generally Accepted Accounting Principles would be ready to pick up IFRS principles.

How Do You Become a Bookkeeper?

Some high schools may offer courses in basic bookkeeping skills. However, most successful bookkeepers have studied the many aspects of bookkeeping responsibilities at a vocational school. Vocational schools prepare you for an entry-level bookkeeper position, without all the electives that take extra years to complete. Plus, the teachers of these classes have relevant work experience in regional industries, and they can bring the classes alive with real-life bookkeeping experiences.

Final Thoughts

Knowing the principles of GAAP will prepare you for a long career in accounting. You can move up the ladder within your own organization or travel the world and provide accounting services to any public company. Is it time for you to learn accounting at a vocational school? The hardest part of any journey is the first step. So, take the first step and learn more about the Interactive College of Technology’s Accounting & Professional Business Applications program, today.

Want to Learn More?

If you’ve always dreamed of starting your own business, increase your chance of success with our Accounting & Professional Business Applications program where you’ll learn the fundamentals of accounts payable / receivable, payroll, general ledgers, reporting / data entry, and office automation.

Let’s take the first step together! Contact us now to learn more.

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