GAAP Case Study

Explain GAAP.

GAAP (generally accepted accounting principles) is a collection of commonly-followed

accounting rules and standards for financial reporting. The acronym is pronounced "gap."

GAAP specifications include definitions of concepts and principles, as well as industry-

specific rules. The purpose of GAAP is to ensure that financial reporting is transparent and

consistent from one organization to another.

There is no universal GAAP standard and the specifics vary from one geographic location or

industry to another. In the United States, the Securities and Exchange Commission (SEC)

mandates that financial reports adhere to GAAP requirements. The Financial Accounting

Standards Board (FASB) stipulates GAAP overall and

To make a study into the financial operations of a particular firm the research scholar needs

detailed accounting information relating to purchases, sales, expenses, cost of materials

used, current assets, current liabilities, fixed assets, long-term liabilities and shareholders’

funds which is available in the accounting records maintained by the firm.

6. Financial Institutions:

Balveen Singh Dhillon A/L Jaswant Singh TI160401005

Bank and financial institutions that provide loan to the business are interested to know

credit-worthiness of the business. The groups, who lend money need accounting

information to analyses a company’s profitability, liquidity and financial position before

making a loan to the company. Further, they keep constant watch on the operating results

and financial position of the business through accounting data.

7. Regulatory Agencies:

Various Government departments such as Company law department, Reserve Bank of India,

Registrar of Companies etc. require information to be filed with them under law. By

examining this accounting information they ensure that concerned companies are following

the rules and

This is a promise to be paid from another party.

Receivables arise when a company provides a service or sells a product to someone on

credit.

All of these assets are resources that a company can use for future benefits. Here are some

common examples of assets:

 Cash

 Accounts Receivable

 Prepaid Expenses

 Vehicles

 Buildings

 Goodwill

 Copyrights

 Patents

ii)Liabilities

A liability, in its simplest terms, is an amount of money owed to another person or organization. Said

a different way, liabilities are creditors' claims on company assets because this is the amount of

assets creditors would own if the company liquidated.

A common form of liability is a payable. Payables are the opposite of receivables. When a company

purchases goods or services from other companies on credit, a payable is recorded to show that the

company promises to pay the other companies for their assets.

Here are some examples of some of the most common liabilities:

 Accounts payable

 Bank loans

 Lines of Credit

 Personal Loans

 Officer Loans

 Unearned income

Balveen Singh Dhillon A/L Jaswant Singh TI160401005

iii)Equity

Equity represents the portion of company assets that shareholders or partners own. In other