Generally Accepted Accountings Principles

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Generally Accepted Accountings Principles are a common set of accounting principles, standards and procedures that companies use to compile their financial statements. These principles are a combination of authoritative standards and the most accepted ways of recording and reporting accounting information. Most companies in the United States adhere to Generally Accepted Accounting Principles to maintain consistency in reporting of financial information and to reduce the risk of fraud and error. The principles have been derived from traditional accounting systems and can be adapted to an organization's management style and industry. GAAP is important to financial statements because it allows companies to provide accurate and consistent financial information to investors, creditors and stakeholders of a company. It is not required by law, but nearly all companies that use GAAP guidelines can maintain consisted reporting processes and prepare accurate financial statements. Liquidity is the ability of a business to turn its asset into cash as its obligations come due. It is safer to invest in liquid assets than illiquid because it is easier for you to get your money out of the investment. The liquidity of a product can be measured as how often it is bought and sold. Buyers are willing to pay higher prices for these assets compared to others so it is more advantageous to own them. All assets and liabilities are listed on the financial statement in the order of their relative liquidity. It is important because businesses that would normally succeed fail due to a lack of readily available cash. I was able to view Unilever’s and Kraft Foods financial statements. With both companies, Cash from Operating Activities appear to be more useful than Net Income because it gives a more detailed picture of cash
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