Question

It is good that GAAP is written as broadly as it is? Explain. What are the Pros and Cons of defining accounting terms more strictly?

Answer 1

The matching principle is an accounting parameter that states that income is calculated by connecting expenses, to the point practicable, with revenues that been documented. It is good that GAAP has it printed as generally since it permits companies to assign the expenses in the same period that revenue is grossed. If accounting terms were added stringently, companies that have a extensive operating cycle would have a more challenging period being “profitable” given the variance in timing in documenting revenues and expenses.