US generally accepted accounting principles

In the United States, as well as other countries practicing English common law system, the government does not set accounting standard by the belief the private sector has better knowledge and resources. The GAAP is not written in law.

Conceptual frame work

GAAP has four basic principles. The historical cost principle requires companies to account and report based on acquisition costs rather than fair market value[?] for most assets and liabilities. The revenue recognition principle requires to record when revenue is realized[?] or realizable and earned, not when cash is received. The way of accounting is called accrual basis accounting. The third principle is the matching principle. Expenses[?] have to be matched with revenues as long as it is reasonable doing so. The last principle is called the full disclosure principle. Amount and kinds of information disclosed should be decided based on trade-off analysis as larger amount of information costs more to prepare and use it. Information disclosed should be enough to make judgement while keeping costs reasonable.

Setting GAAP

Those organizations influence developing GAAP in the United States.

• Securities and Exchange Commission (SEC)
• American Institute of Certified Public Accountants (AICPA)
• Financial Accounting Standards Board (FASB)
• Governmental Accounting Standards Board (GASB)
• Other influential organizations

GAAP is composed of various documents. Accounting Principles Board (APB) dissolved in 1973 and the FASB took over the responsibility setting up the standards.