Accounting Systems that Must Follow GAAP: A Comprehensive Guide

Course Content

When it comes to financial reporting, organizations need to adhere to certain rules and standards to ensure accuracy, transparency, and comparability. In the realm of accounting, one of the most crucial sets of standards is the Generally Accepted Accounting Principles (GAAP). In this article, we will explore the key aspects of accounting systems that must follow GAAP.

What Rules and Standards Guide an Accounting System?

Accounting systems that must follow GAAP are bound by a set of rules and standards that govern financial reporting. These rules ensure that financial statements are prepared with consistency, enabling stakeholders to make informed decisions.

Nonprofit Accounting Standards

Nonprofit organizations have specific accounting standards that they must adhere to. These standards address the unique financial reporting requirements and goals of nonprofit entities.

Who Established These Standards?

The Financial Accounting Standards Board (FASB) is the authoritative body responsible for establishing and maintaining GAAP. FASB constantly evaluates and updates the standards to reflect the changing needs of the accounting profession and the business landscape.

More Required Nonprofit Accounting Standards

In addition to the standard GAAP requirements, nonprofit organizations have additional accounting standards to follow. These standards focus on areas such as fund accounting, revenue recognition, and expense classification.

Statement Of Financial Position

The Statement of Financial Position, also known as the balance sheet, is a crucial component of an accounting system following GAAP. It provides an overview of an organization's assets, liabilities, and net assets at a specific point in time.

Statement Of Financial Activities

The Statement of Financial Activities, also known as the income statement, presents an organization's revenues, expenses, gains, and losses over a specific period. It helps stakeholders understand the financial performance and results of operations.

Statement Of Functional Expenses

The Statement of Functional Expenses outlines the classification of expenses by their functional and programmatic nature. It enables transparency in reporting how resources are allocated to different programs and support functions.

Form 990

Form 990 is the annual information return that tax-exempt organizations must file with the Internal Revenue Service (IRS). It provides detailed information about an organization's mission, programs, governance, and financial activities.

By adhering to GAAP and implementing accounting systems that follow these standards, organizations can ensure accurate financial reporting, maintain compliance with regulatory requirements, and provide stakeholders with reliable information.