Definition
US GAAP, the Generally Accepted Accounting Principles of the United States, is the accounting framework that US public companies must follow and most US private companies use. The Financial Accounting Standards Board (FASB) sets it through the Accounting Standards Codification, which organises every authoritative rule by topic number.
How it works
The Codification groups standards into topics such as ASC 330 Inventory, ASC 606 Revenue from Contracts with Customers and ASC 842 Leases. New guidance is issued as Accounting Standards Updates that amend the Codification. The SEC enforces US GAAP for listed companies.
US GAAP and IFRS have converged in revenue and leases but still differ. US GAAP allows LIFO inventory; IFRS does not. US GAAP generally expenses development costs that IFRS may capitalise, and it prohibits reversing inventory write-downs that IFRS allows.
A US GAAP chart of accounts often follows the order of a classified balance sheet and a multi-step income statement. The US GAAP chart of accounts template is built that way, and Ledgeriano can create a business directly from it.
Example: LIFO under US GAAP
A distributor buys 100 units at 10, then 100 at 12, and sells 120. Under LIFO, cost of sales is 100 × 12 + 20 × 10 = 1,400 and closing inventory is 80 × 10 = 800. Under FIFO, cost of sales is 100 × 10 + 20 × 12 = 1,240. In rising prices LIFO lowers reported profit, which is why it is popular for US tax purposes.