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If all businesses used their own system of accounting, or indeed no system at all, there would be no way to tell which businesses are profitable and which are not. Because of this most companies now use a common set of accounting principles, which are called generally accepted accounting principles, or GAAP for short. Everybody can presume that a company has used the GAAP system unless they specifically state otherwise. When GAAP methods are not used the company needs to make clear which other form of accounting they have used and are banned from using misleading titles in their financial statements. Most accountants consider GAAP the gold standard for financial statements and summaries. If a company does not disclose it doesn’t use GAAP it makes them financially liable for any misunderstanding in the data they supply. GAAP methods have been fine-tuned over many decades and bascially created a whole way for the financial systems of companies to work. Diverse principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.

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