Introduction to Financial Accounting and Generally approved accounting principles (GAAP)

Accounting, "The Terminology of Business", is a large and different subject. Subtopics include financial accounting, cost accounting, management accounting, internal auditing external auditing, international accounting, government and not-for-profit accounting and taxation. The subtopic that consists of the biggest part of an accountant firm’s educational program of research is financial accounting.

The objective of financial accounting is generally to provide useful details to customers who will use those details to determine, most generally either a financial commitment or a credit choice. To be useful details needs to be appropriate and efficient. The most common means of offering details to customers is through the planning of financial statements: 1. the income declaration, 2. the balance sheet, 3. the statement of cash flows, and 4. the statement of shareholders' equity.

The income statement presents the profitability of company over a period of time. The balance sheet presents the assets, liabilities, and owners' equity at the end of the period of time used for the income statement. The statement of cash flows classifies all cash inflows and outflows during the period of time into one of three categories: managing, investing and financing, and funding. The statement of shareholders' equity reveals how the shareholders' equity modified over the period.

Generally approved accounting principles (GAAP) are a set of requirements, methods, techniques, and recommendations organizations follow in calculating and confirming financial details in the financial statements. GAAP comes from published resources as well as methods that have been used for a long time that have become usually approved. Although the Securities and Exchange Commission (SEC) has the legal power to set accounting standards for companies, it has always assigned the majority of this liability to the accounting career itself. The current accounting professional body that places requirements is known as the Financial Accounting Standards Board (FASB). The FASB problems requirements known as Statements of Financial Accounting Standards (SFAS). As of May 2007 the FASB has released 159 such statements.

All public organizations record their shares on U.S. stock exchange must have their financial statement audited by an external CPA company that expresses a viewpoint as to whether the financial statements have been prepared in complying with GAAP. The idea is to offer reliability to the financial statements by offering a third-party's confirmation that the statements are provided quite in complying with top quality requirements, GAAP!

Recent accounting scams (WorldCom, Enron, etc), however, have given the accounting career somewhat of a dark eye and have restarted the controversy over whether principles-based, or more lately known as, objectives-oriented, requirements should be set forth in contrast to rules-based accounting requirements. A principles-based strategy to conventional establishing pressures expert verdict, in contrast to following a specific list of recommendations.