FIN621 Midterm Papers GAAP: People and organizations make decisions based on financial information prepared by accountants. That is why it is important for people and organizations to understand the ways in which accounting information is measured. To ensure consistency, rules are established that business people can use to make sure they are comparing oranges to oranges. For example, assume a store sells goods. Should the store's accountant record the sale at the moment the goods are shipped ( accrual accounting ) or at the time cash for these goods is received ( cash accounting )? Whether the store owner applies accrual or cash accounting is not important to interested parties, as long as the owner follows a rule requiring him to disclose the chosen accounting method for the reporting purposes. Accounting rules such as these are grouped together and called Generally Accepted Accounting Principles ( GAAP ). Generally Accepted Accounting Principles: Entity principle/ separate ent...
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