Financial Intelligence, Revised Edition: A Manager's Guide to Knowing What the Numbers Really Mean

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The Rules Accountants Follow—and Why You Don’t Always Have To

We don’t plan to include more than a smattering of accounting procedures in this book. But we do think it’s a good idea to have a broad grasp of the rules accountants are supposed to follow. That will help you understand why they choose to rely on certain estimates and assumptions and not others. Besides, some companies prepare financials for their own use that do not follow these rules—and those documents can be valuable, too.

So let’s begin at the beginning. Accountants in the United States rely on a set of guidelines known as Generally Accepted Accounting Principles, or GAAP (pronounced gap) for short. GAAP includes all the rules, standards, and procedures that companies use when ...