![]() This principle provides guidelines for when a company can record revenue in its accounting ledger and then report it on its income statement. The revenue recognition principle under GAAP dictates that revenues are recognized when earned, not necessarily when received. Let’s look at an example of the application of a GAAP principle: the revenue recognition principle. Internationally, similar functions are performed by the International Financial Reporting Standards (IFRS), which is governed by the International Accounting Standards Board (IASB). It’s worth noting that the Financial Accounting Standards Board (FASB) is the organization that develops and maintains GAAP in the United States. Understandability: The financial statements are clearly presented.Comparability: Users must be able to compare the financial statements of a company over time to identify trends.Reliability: Information is reliable if it is free from material error and bias, and faithfully represents what it purports to represent.Relevance: Information is relevant if it would be useful to users in making their economic decisions. ![]() GAAP principles are designed to ensure the following factors are achieved in the preparation of financial statements: Public companies, nonprofit organizations, and governments use GAAP for financial reporting. ![]() GAAP covers such things as revenue recognition, balance sheet item classification, and outstanding share measurements. The purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. ![]()
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