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How GAAP provide guidelines in preparation of Financial Statements? Explain with example.

How GAAP provide guidelines in preparation of Financial Statements? Explain with example.

by Fouzia Faria -
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Generally accepted accounting principles, or GAAP, are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices. For example, wages of workers of a company are reported as wage expense in the week, even if the worker will not be receiving the money until later in the month. Similarly, revenue is recognized and reported in financial statements at the time a sale is made, regardless of when the business actually receives payment.