What is a GAAP income statement? (with photo)

A GAAP income statement is a collection of several different statements.

The Generally Accepted Accounting Principles (GAAP) income statement is a financial report prepared in accordance with guidelines established by the Financial Accounting Standards Board (FASB). Organizations that follow these principles can guarantee investors a certain consistency, which can make it easier to evaluate investment options. This type of statement also follows a quality standard, which helps to encourage legal and ethical reporting. Some of the things found in a GAAP income statement include classifying balance sheet items and recognizing income.

A GAAP income statement is actually a collection of several different statements. In addition to a statement that provides an overview of the situation of the organization, there is the balance sheet, the statement of equity and the statement of cash flow. Both the collection of all these statements and the statement with the overview can be called an income statement.

Some of the information commonly found on a GAAP income statement includes assets, liabilities, expenses, and income. They are typically organized into main categories with subcategories and separate line items as needed. For example, the expense category might have a food subcategory, where there might be a separate beverage line item.

There are several specific principles that apply to a GAAP income statement. An important guideline is that a distinction should be made between current and non-current assets and liabilities. Items that are unlikely to be converted to cash by the end of the year are considered non-current. All liabilities that will not be settled by the end of the year are also considered non-current. The overall cash flow for the period in question must also be reported.

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The precise guidelines for preparing a GAAP income statement may change over time. The FASB will periodically propose changes to industry professionals, who will provide feedback, which will be incorporated into the board’s decision-making process. Once these changes are adopted, the structure of declarations will also evolve.

While a GAAP income statement can give investors a greater sense of confidence in a company, it is not the only measure to consider. As with any set of rules, an accountant can work within GAAP guidelines to distort information and mislead analysts. Using these guidelines is a good start, but taking a deeper look at the company and how its income statements match its true status can also be an important practice.

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