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Accounting and Auditing Research and Databases: Practitioner's Desk Reference by Thomas C. Pearson, Natalie Tatiana Churyk, Thomas R. Weirich

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U.S. Generally Accepted Accounting Principles (U.S. GAAP)

U.S. GAAP is “a technical accounting term which encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.”2 This definition implies two points:

1. U.S. GAAP is a fluid set of principles based on current accounting thought and practice. It changes in response to changes in the business environment. Therefore, the researcher must review the most current authoritative support, recognizing that recent Accounting Standards Updates (ASUs) sometimes supersede or modify older standards.
2. U.S. GAAP allows alternative principles for similar transactions and the alternatives are considered equally acceptable. Therefore, the researcher must keep searching for alternatives rather than quitting after locating one acceptable principle.

Major U.S. GAAP functions include:

1. Measurement. U.S. GAAP requires recognizing or matching expenses of a given period with the revenues earned during that period (for example, depreciating fixed assets and recognizing stock option compensation expense and bad debt allowances). Besides attempting to measure periodic income objectively, the measurement principle focuses on the valuation of financial statement accounts (for example, adjusting trading securities each reporting period to fair value).
2. Disclosure. U.S. GAAP provides information necessary for the users’ decision models (for example, methods to aggregate accounts and descriptive ...

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