From the course: Accounting Foundations: Understanding the GAAP (Generally Accepted Accounting Principles)

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Why is understanding the US GAAP important?

Why is understanding the US GAAP important?

From the course: Accounting Foundations: Understanding the GAAP (Generally Accepted Accounting Principles)

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Why is understanding the US GAAP important?

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- One of my two daughters was heavily driven by logic from the time she was born. Often she didn't want to follow my rules, but if she knew the logic behind the rule, she would follow my rules without arguing with me. Well, until she turned 12. If you are anything like her, you may wonder why we need all of these accounting rules. What's the logic behind it? Why do we need this US GAAP? The answer to that question is really quite simple. If we didn't have our accounting standards, every business would prepare financial statements using whatever rules their accountant put in place. And with a little pressure from a senior leader, those financial statements could easily become one twist too far from the truth. Let's take a look at what I mean. When preparing the income statement, US GAAP provides rules for when we can show revenues and expenses using accrual basis accounting. If we didn't have these rules, one business might…

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