ShmoopTube

00:00

Finance allah shmoop what is a gap Yeah not this

00:09

Nor this Nor this gap is an accounting term that

00:13

stands for generally accepted accounting principles And it is basically

00:18

the accounting code of hammurabi or the ten commandments that

00:22

is There are lots and lots and lots of ways

00:24

that clever bean counters could define and or account for

00:28

the notion of profits lots of ways to recognize revenues

00:32

versus sales and lots of ways to think about how

00:34

much that ten commandment frisbee factory is appreciating in value

00:39

each year Well the world according to gaff outlines the

00:42

structure under which accountants must you know count beans the

00:45

basic idea Well sort of in the vein of the

00:47

golden rule that is do unto others as you'd have

00:50

them do unto you Gap requires that accountants always present

00:54

their numbers in the most reasonably conservative manner possible such

00:58

that they never overstate how profitable or how well the

01:02

company is doing Gap is the framework the map the

01:05

religion and the destinations we want to go inside this

01:09

neck of the accounting woods are three income statement cash

01:12

flow statement balance sheet will none of these three key

01:15

elements mean anything however unless they all follow the same

01:20

rules they're linked like gears in an overpriced swiss watch

01:25

and the eighteen zillion individual rules on their own mean

01:28

nothing like what is revenue Is it a dollar you

01:31

collect in cash at a video game arcade booth Is

01:34

it the promise to pay that dollar in a year

01:37

Well there are lots of ways to account for this

01:39

notion of revenue so don't think of gaff isa siri's

01:42

of rules rather think of it as this you know

01:45

key mathey kind of finance e a county religion it's

01:49

all about quote doing right unquote and part of that

01:52

issue is a natural conservatism that has to come with

01:56

it kind of amish you'd think would be a good

01:59

gap Accountants Well if you're thinking about how to account

02:02

for five dollars promised to you in a year well

02:04

you have to recognize that there is risk you won't

02:07

collect it and that money a year from now is

02:09

worth less than its face value and well that you

02:12

should categorise those revenues way off in the distance differently

02:17

from how you'd categorize collecting the five dollar bill in

02:19

cash that day and putting it in your cigar box

02:22

there right So gap is basically the force in accounting 00:02:26.44 --> [endTime] May it be with you

Full Transcript