Accounting Conservatism

Finance allah shmoop what is a gap Yeah not this

Nor this Nor this gap is an accounting term that

stands for generally accepted accounting principles And it is basically

the accounting code of hammurabi or the ten commandments that

is There are lots and lots and lots of ways

that clever bean counters could define and or account for

the notion of profits lots of ways to recognize revenues

versus sales and lots of ways to think about how

much that ten commandment frisbee factory is appreciating in value

each year Well the world according to gaff outlines the

structure under which accountants must you know count beans the

basic idea Well sort of in the vein of the

golden rule that is do unto others as you'd have

them do unto you Gap requires that accountants always present

their numbers in the most reasonably conservative manner possible such

that they never overstate how profitable or how well the

company is doing Gap is the framework the map the

religion and the destinations we want to go inside this

neck of the accounting woods are three income statement cash

flow statement balance sheet will none of these three key

elements mean anything however unless they all follow the same

rules they're linked like gears in an overpriced swiss watch

and the eighteen zillion individual rules on their own mean

nothing like what is revenue Is it a dollar you

collect in cash at a video game arcade booth Is

it the promise to pay that dollar in a year

Well there are lots of ways to account for this

notion of revenue so don't think of gaff isa siri's

of rules rather think of it as this you know

key mathey kind of finance e a county religion it's

all about quote doing right unquote and part of that

issue is a natural conservatism that has to come with

it kind of amish you'd think would be a good

gap Accountants Well if you're thinking about how to account

for five dollars promised to you in a year well

you have to recognize that there is risk you won't

collect it and that money a year from now is

worth less than its face value and well that you

should categorise those revenues way off in the distance differently

from how you'd categorize collecting the five dollar bill in

cash that day and putting it in your cigar box

there right So gap is basically the force in accounting 00:02:26.44 --> [endTime] May it be with you