Accounting Gapp, or "Generally Accepted Accounting Principles," Essay

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Accounting

GAPP, or "generally accepted accounting principles," has very specific meanings for the accounting profession. Like many other fields, these are best practice principles, and they both govern the standards of accountants and guide in licensing. They were designed so that there was a more even playing field, level of transparency, and trust in the accounting industry (see, for example, www.fasab.gov/accepted.html). While not always absolutes, these types of guidelines are a template for the way in which CPAs and accounting processionals work through documents, report figures, and are responsible for the manner in which information is disclosed (for more, review the site AICPA, at www.aicpa.org). There are two different ways to look at accounting data, according to GAPP: accrual or cash.

Cash Method- Cash accounting (receipts and disbursements) is a way of recording revenue when cash is received and recording expenses when they are paid. There are some advantages in using this method because payment of expenses may be accelerated before year end, which maximizes deductions and billings can be postponed; causing the IRS to discourage this form of accounting for tax purposes (Whittenburg, 2010). The fundamental premise of cash accounting is that the event is recorded when it happens -- money received, money spent and technically should reflect a snapshot of the company at that very moment in time.

Accrual Method- The accrual method records incidents when they are earned or when expenses are incurred. It is a way to measure the performance and position of any organization by focusing of the timing of the event rather than when cash is used to pay or received. It uses a matching principle that matches revenues to expenses so that cash inflow/outlow can be combined at the present time with future in/out to give a more complete picture of the organization's actual fiscal health. Thus, for many it is considered to be the standard accounting practice, the exception being extremely small companies. This is because the accrual is more than just a snapshot of cash, it is a picture of the organization (Accrual Accounting, 2012).

Analysis -- The decision on the accounting method is…

Sources Used in Document:

REFERENCES

Accrual Accounting. (2012). Investopedia. Retrieved from:

http://www.investopedia.com/terms/a/accrualaccounting.asp#axzz1vegj0tXy

Stickney, C.P., et.al. (2010). Financial Accounting: An Introduction. Mason, OH: South Western

Cenage.

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