General Accepted Accounting Principles (GAAP)

Paper Summary:

This paper explains that general accepted accounting principles (GAAP) provide a consistent framework for the production and presentation of financial statements. The paper points out that GAAP provides easy interpretation and comparability of the statements between companies. The paper then analyzes Western Digital's annual report and projects that, because of its conservative outlook, the company will more likely spend its capital on organic growth or small acquisitions that will be easy to digest. Next, the paper reviews Toyota's annual report and surmises that the largest factor impacting US performance was an adjustment to meet a US accounting standard rather than any sort of sales or expense shift.

From the Paper:

"The difference between current assets and liabilities, and non-current ones, is important to financial statements. This distinction relates to the two main components of a firm's financial situation - the overall situation and the short-term situation. The short term situation directly relates to a firm's liquidity and solvency, giving a picture of the firm's ability to survive in the near term. This is specific information, and not necessarily related to a firm's long-term health. Liquidity issues can cause problems even for a very healthy company."

Sample of Sources Used:

• Western Digital 2007 Annual Report and Form 10-K
• Toyota Financial Summary FY2008 Third Quarter
• Toyota's Statement of Cash Flows from Reuters, retrieved July 23, 2008 from http://www.reuters.com/finance/stocks/incomeStatement?stmtType=CAS&perType=ANN&symbol=TM.N

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