What does Generally Accepted Accounting Principles (GAAP) require?
At the most basic and essential level, GAAP requires that all organizations preparing financial statements be in conformity with each other. GAAP is a large compilation of the concepts, principles, procedures, and regulations that have been developed by the Financial Accounting Standards Board (FASB).
Three main sources of GAAP are used. The main source of GAAP is always pronouncements passed by the FASB. The other main sources are regulations that have been developed by the Securities and Exchange Commission, and accounting practices that have been developed by both private and public bodies. All companies that are regulated by the SEC must adhere to GAAP. Publicly traded companies cannot compile a financial statement not in accordance with GAAP.
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The solution provides a thorough discussion explaining what GAAP requires and if all companies should have bad debt.