---
title: "US GAAP, and where these rules come from"
description: "This system states a lot of accounting rules. Revenue is earned on delivery. Depreciation allocates cost rather than measuring value. A statement of cash flows has three sections and reconciles to the change in cash. A posted entry is reversed, never edited."
canonical: "https://lopifi.com/docs/domain/us-gaap"
---

# US GAAP, and where these rules come from

> This system states a lot of accounting rules. Revenue is earned on delivery. Depreciation allocates cost rather than measuring value. A statement of cash flows has three sections and reconciles to the change in cash. A posted entry is reversed, never edited.

Source: https://lopifi.com/docs/domain/us-gaap
Part of: Lopifi — Planned: US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

# US GAAP, and where these rules come from

This system states a lot of accounting rules. Revenue is earned on delivery. Depreciation allocates
cost rather than measuring value. A statement of cash flows has three sections and reconciles to the
change in cash. A posted entry is reversed, never edited.

Each of those has an authority behind it, and a component that encodes a rule without naming the source
is asking you to take its word. This page sorts the rules into what US GAAP **requires**, what is
**presentation convention** and what is **the mechanics of bookkeeping**. Most writing on the subject
files all of it under "best practice."

The machine-readable copy of this table lives in `src/learn/sources.ts`. The course at `/learn` and every
glossary term page render it, and `tests/course.test.ts` checks it against this page, so a citation
can't be added in one place and forgotten in the other.

---

## The hierarchy

**The Codification is authoritative GAAP.** It's the one source, and everything in it carries equal
weight.

> This Statement establishes the Codification as the source of authoritative GAAP recognized by the
> FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under
> federal securities laws are also sources of authoritative GAAP for SEC registrants. All guidance
> contained in the Codification carries an equal level of authority.
>
> — [FASB Statement No. 168, ¶6 (June 2009)](https://storage.fasb.org/fas168.pdf). © Financial Accounting Foundation. All rights reserved.

**Concepts Statements are not GAAP.** They define what an asset *is* and don't tell you what to do.
The Conceptual Framework says as much about itself: a Concepts Statement does not "amend, modify, or
interpret the Accounting Standards Codification." We quote CON 8 for the definitions of the elements
because it says what those words mean more clearly than anything else. We don't cite it as a requirement.

**This is US GAAP only.** An entity reporting under IFRS answers to different standards (IAS 1, IAS 7,
IFRS 15) and in places to different rules. The two are not interchangeable.

**Access.** The Codification is free to read at [asc.fasb.org](https://asc.fasb.org/) after
registration. Where a quotation below could not be pulled from the Codification itself, the "read in"
column names the openly readable document the text was verified in, and the date it was checked.

---

## What is required, what is convention

| Claim this system makes | Kind | Authority |
|---|---|---|
| Assets, liabilities, equity, revenue and expenses have precise definitions | Concept | CON 8, Ch. 4, ¶E16, ¶E37, ¶E61, ¶E80–E81 |
| Revenue is recognized when control transfers, not when cash arrives | **Required** | ASC 606-10-05-3, -05-4; 606-10-25-23, -25-30 |
| A cost paid ahead of consumption is an asset until consumed | **Required** | ASC 340-10 |
| Cash taken before delivery is a liability, not revenue | **Required** | ASC 606-10-45 (contract liability) |
| A cost incurred and unbilled is accrued into the period | **Required** (accrual-basis GAAP) — pervasive rather than one paragraph | Topic by topic, e.g. ASC 710-10-25-1 (compensation), ASC 450-20-25-2 (probable, estimable losses); CON 8's accrual concept explains it but is not GAAP |
| Depreciation allocates cost over useful life; it is not a valuation | **Required** | ASC 360-10-35-4 |
| Finite-lived intangibles amortize over their useful life; prepaid costs are expensed as consumed | **Required** | ASC 350-30-35; ASC 340-10 |
| A balance sheet presents position; a P&L presents a period | **Required** | ASC 210, ASC 220, ASC 205 |
| Cash flows are classified operating / investing / financing | **Required** | ASC 230-10-45-10 |
| The indirect method separately reports the change in receivables, inventory and payables | **Required** | ASC 230-10-45-28, -45-29 |
| The statement reconciles opening to closing cash | **Required** | ASC 230-10-45-24 |
| An error is corrected and disclosed, not quietly overwritten | **Required** | ASC 250-10-45 |
| Materiality is not a fixed percentage | SEC staff guidance (registrants) | SEC SAB No. 99 |
| A prior-year error is quantified under both the rollover and iron curtain approaches | SEC staff guidance (registrants) | SEC SAB No. 108 |
| A registrant's balance sheet uses prescribed captions | **Required** (SEC registrants) | Reg S-X, 17 CFR 210.5-02 |
| A published non-GAAP measure is reconciled to the GAAP measure | **Required** (SEC registrants) | Reg G; Item 10(e) of Reg S-K |
| Negatives are parenthesised; subtotals take a single rule and totals a double rule | Convention | Presentation practice — not codified |
| Debit is the left column and credit the right | Mechanics | Bookkeeping convention — not codified |
| Debit and credit are two columns rather than one signed number | Mechanics | Bookkeeping convention — not codified |
| A chart of accounts has 1000s for assets, 2000s for liabilities | Convention | Not prescribed by GAAP |
| Nearly every lease puts a right-of-use asset and a lease liability on the balance sheet | **Required** | ASC 842-20-25-1 (short-term lease election: 842-20-25-2) |
| Receivables carry an allowance for lifetime expected credit losses from day one | **Required** | ASC 326-20 (CECL) |
| Sales tax collected from a customer is a liability, not revenue | **Required** once the entity elects to exclude such taxes from the transaction price; without the election, each tax is assessed as an amount collected for a third party | ASC 606-10-32-2A (the election); 606-10-32-2 |
| Payroll withholdings and the employer's payroll taxes are liabilities until deposited; only the employer's share is an expense | Mechanics — the obligation is tax law, the entry follows from the definitions of a liability and an expense | IRS Publication 15; CON 8, Ch. 4, ¶E37, ¶E81 |
| A dividend reduces retained earnings and is never an expense; declared and unpaid, it is a liability | Mechanics and presentation convention — follows from the definitions of expense and equity; whether a board may declare one is state corporate law | CON 8, Ch. 4, ¶E61, ¶E81; ASC 505 (topic pointer) |
| Deferred taxes are measured at enacted rates and reduced by a valuation allowance when realization is not more likely than not | **Required** | ASC 740-10-30 |
| Events after the balance sheet date are recognized only if the condition existed at that date | **Required** | ASC 855-10-25 |
| A parent consolidates what it controls and eliminates intercompany balances | **Required** | ASC 810-10-15-8, -15-10 (controlling financial interest); 810-10-25-38A (variable interest entities); 810-10-45-1 (eliminations) |
| Foreign-currency-denominated monetary items are remeasured through earnings; translation differences go to OCI | **Required** | ASC 830-20-35-1; ASC 830-30-45 |
| Segregation of duties, approval chains, evidence, audit trail | Internal control | SOX §404 — SEC Release 33-8238 |
| Revenue is recognized by five steps: contract, performance obligations, transaction price, allocation, satisfaction | **Required** | ASC 606-10-05-4 |
| An agreement is a contract under Topic 606 only when all five criteria in 606-10-25-1 are met | **Required** | ASC 606-10-25-1 |
| A bundle's price is allocated to its promises in proportion to their standalone selling prices | **Required** | ASC 606-10-32-31 |
| A promise is satisfied over time only if one of three criteria is met; otherwise at a point in time, judged by indicators of control | **Required** | ASC 606-10-25-27; 606-10-25-30 |
| FIFO and average-cost inventory is carried at the lower of cost and net realizable value, the gap recognized as a loss when it occurs | **Required** | ASC 330-10-35-1B (ASU 2015-11) |
| An asset's cost includes freight, installation and whatever else it took to make it ready for use | **Required** | FASB Statement No. 34, ¶6 (now ASC 835-20) |
| A capitalization threshold is a policy: GAAP sets no dollar amount, and its provisions need not be applied to immaterial items | Policy, bounded by materiality | ASC 105-10-05-6; for tax, the de minimis safe harbor, Treas. Reg. §1.263(a)-1(f) |
| A shortage found by a physical count is taken out of inventory as a loss of the period | Mechanics — a perpetual record says what *should* be there; the count says what is | Bookkeeping convention — not codified |

Read the middle column first. A component that puts a negative in parentheses is following a
convention, and you're entitled to disagree with it. A component that shows a customer deposit as
revenue is wrong, however good it looks.

---

## Recent standards this system tracks

Accounting Standards Updates amend the Codification. Until an ASU is effective for an entity, the
superseded text still governs it. A component that encodes a rule from an ASU states which version it
follows. Effective dates below are for calendar-year entities unless noted, and are checked against
FASB's ASU pages and the large-firm summaries as of October 2026.

| ASU | Topic | What changes for the UI | Effective |
|---|---|---|---|
| 2016-02 | ASC 842 Leases | ROU asset and lease liability on the balance sheet; maturity analysis | In effect for all entities |
| 2016-13 | ASC 326 Credit losses (CECL) | Lifetime expected-loss allowance replaces incurred loss | In effect for all entities |
| 2023-07 | ASC 280 Segments | Significant segment expenses provided to the CODM, annually and interim | PBEs: fiscal years beginning after Dec 15, 2023; interim after Dec 15, 2024 |
| 2023-08 | ASC 350-60 Crypto assets | In-scope crypto measured at fair value through net income, presented separately | Fiscal years beginning after Dec 15, 2024 |
| 2023-09 | ASC 740 Income taxes | Rate reconciliation by prescribed category; income taxes paid by jurisdiction | PBEs: annual periods beginning after Dec 15, 2024; others after Dec 15, 2025 |
| 2024-03 / 2025-01 | ASC 220-40 Expense disaggregation | Footnote splitting expense captions into inventory purchases, employee compensation, D&A and other | PBEs: annual periods beginning after Dec 15, 2026; interim after Dec 15, 2027 |
| 2025-05 | ASC 326 Credit losses | Practical expedient for current AR and contract assets; private-entity election to consider subsequent collections | Annual periods beginning after Dec 15, 2025 |
| 2025-06 | ASC 350-40 Internal-use software | Project stages removed; capitalize once funding is committed and completion is probable | Annual periods beginning after Dec 15, 2027 |

Outside GAAP but on the same screens: from 2026 the Form 1099-NEC and 1099-MISC reporting threshold rises
from $600 to $2,000 (One Big Beautiful Bill Act, July 2025), and under IFRS, IFRS 18 replaces IAS 1 for
annual periods beginning on or after January 1, 2027.

---

## The sources, and what we read

Every quotation in this system was read in the document named here, on the date named here, and none
was recalled from memory. Quotations of FASB text (the Codification, the Statements and the Concepts
Statements) are © Financial Accounting Foundation. All rights reserved. They're kept short and quoted
for comment.

| Cite | What it says | Read in | Checked | Access |
|---|---|---|---|---|
| [FASB Statement No. 168, ¶6](https://storage.fasb.org/fas168.pdf) | The Codification is the source of authoritative GAAP | Same document (PDF) | 2026-10-17 | Free |
| [ASC 105-10](https://asc.fasb.org/105/tableOfContent) | Generally Accepted Accounting Principles — Overall | Not quoted — topic pointer | 2026-09-07 | Registration |
| [CON 8, Ch. 4, ¶E16](https://www.fasb.org/concepts-statements) | "An asset is a present right of an entity to an economic benefit." | Concepts Statement No. 8, Chapter 4 (Dec 2021), PDF | 2026-10-17 | Free |
| [CON 8, Ch. 4, ¶E37](https://www.fasb.org/concepts-statements) | "A liability is a present obligation of an entity to transfer an economic benefit." | As above | 2026-10-17 | Free |
| [CON 8, Ch. 4, ¶E61](https://www.fasb.org/concepts-statements) | Equity is "the residual interest in the assets of an entity that remains after deducting its liabilities" | As above | 2026-10-17 | Free |
| [CON 8, Ch. 4, ¶E80–E81](https://www.fasb.org/concepts-statements) | Definitions of revenues and expenses | As above | 2026-10-17 | Free |
| [CON 8, Ch. 4, App. A](https://www.fasb.org/concepts-statements) | What accrual accounting attempts to do (carried forward from CON 6 ¶139) | As above | 2026-10-17 | Free |
| [ASC 606-10-05-3, -05-4](https://asc.fasb.org/606/tableOfContent) | The revenue core principle and the five steps | PwC Viewpoint — the ASC 606 five-step model | 2026-10-13 | Registration |
| [ASC 230-10-45-10](https://asc.fasb.org/230/tableOfContent) | Cash flows are classified as operating, investing or financing | EY FRD, *Statement of cash flows (ASC 230)*, July 2026 | 2026-10-13 | Registration |
| [ASC 230-10-45-28, -45-29](https://asc.fasb.org/230/tableOfContent) | The indirect method, and its minimum reconciling items | As above | 2026-10-13 | Registration |
| [ASC 230-10-45-24](https://asc.fasb.org/230/tableOfContent) | The statement reconciles beginning and ending cash | As above | 2026-10-13 | Registration |
| [ASC 360-10-35-4](https://asc.fasb.org/360/tableOfContent) | Depreciation is "a process of allocation, not of valuation" | PwC Viewpoint — PP&E depreciation overview | 2026-10-13 | Registration |
| [ASC 326-20-30-1](https://asc.fasb.org/326/tableOfContent) | The allowance for credit losses is "a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net amount expected to be collected" | FASB ASU 2016-13 as issued (PDF) | 2026-10-18 | Registration |
| [ASC 606-10-32-2A](https://asc.fasb.org/606/tableOfContent) | An entity "may make an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority…" | FASB ASU 2016-12 as issued (PDF) | 2026-10-18 | Registration |
| [IRS Publication 15 (2026)](https://www.irs.gov/publications/p15) | Withheld income and FICA taxes are "called trust fund taxes" — owed to the Treasury, not the employer's | Same document | 2026-10-18 | Free |
| [SEC SAB No. 99](https://www.sec.gov/interps/account/sab99.htm) | "…exclusive reliance on this or any percentage or numerical threshold has no basis in the accounting literature or the law." | Same document | 2026-10-13 | Free |
| [SEC SAB No. 108](https://www.sec.gov/interps/account/sab108.htm) | "The staff believes that this can be accomplished by quantifying an error under both the rollover and iron curtain approaches as described above…" | Same document | 2026-10-18 | Free |
| [Reg S-X, 17 CFR 210.5-02](https://www.ecfr.gov/current/title-17/part-210/section-210.5-02) | The balance sheet captions a registrant must present | 17 CFR 210.5-02, 2024 edition (govinfo PDF) | 2026-10-13 | Free |
| [Reg G — SEC Release 33-8176](https://www.sec.gov/rule-release/33-8176) | A non-GAAP measure must be reconciled to the GAAP measure | 17 CFR 244.100, Cornell LII | 2026-10-17 | Free |
| [SEC Release 33-8238](https://www.sec.gov/rule-release/33-8238) | Management's report on internal control over financial reporting | Not quoted — cited only | 2026-09-07 | Free |
| [IRS Publication 538](https://www.irs.gov/publications/p538) | The cash and accrual methods, for tax | Same document (rev. 01/2022) | 2026-10-13 | Free |
| [ASC 606-10-05-4](https://asc.fasb.org/606/tableOfContent) | "An entity recognizes revenue in accordance with that core principle by applying the following steps…" — the five steps | FASB ASU 2014-09, Section A, as issued ([PDF](https://storage.fasb.org/ASU%202014-09_Section%20A.pdf)) | 2026-10-18 | Registration |
| [ASC 606-10-25-1](https://asc.fasb.org/606/tableOfContent) | A contract is accounted for "only when all of the following criteria are met" | As above | 2026-10-18 | Registration |
| [ASC 606-10-32-31](https://asc.fasb.org/606/tableOfContent) | Allocate the transaction price "in proportion to those standalone selling prices" | As above | 2026-10-18 | Registration |
| [ASC 606-10-25-27](https://asc.fasb.org/606/tableOfContent) | Revenue is recognized over time "if one of the following criteria is met" | As above | 2026-10-18 | Registration |
| [ASC 606-10-25-30](https://asc.fasb.org/606/tableOfContent) | The indicators of the transfer of control at a point in time: right to payment, legal title, physical possession, risks and rewards, acceptance | As above | 2026-10-18 | Registration |
| [ASC 606-10-45-2](https://asc.fasb.org/606/tableOfContent) | "A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration…" | As above | 2026-10-18 | Registration |
| [ASC 330-10-35-1B](https://asc.fasb.org/330/tableOfContent) | FIFO and average-cost inventory "shall be measured at the lower of cost and net realizable value" | FASB ASU 2015-11 as issued ([PDF](https://storage.fasb.org/ASU%202015-11.pdf)) | 2026-10-18 | Registration |
| [ASC 105-10-05-6](https://asc.fasb.org/105/tableOfContent) | "The provisions of the Codification need not be applied to immaterial items." | FASB Statement No. 168, Appendix (PDF) | 2026-10-18 | Registration |
| [FASB Statement No. 34, ¶6](https://storage.fasb.org/fas34.pdf) | "The historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use." Superseded by the Codification (ASC 835-20) | Same document (PDF) | 2026-10-18 | Free |
| [IRS — Tangible Property Final Regulations](https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations) | The de minimis safe harbor: up to $5,000 per invoice or item with an applicable financial statement, $2,500 without | Same page | 2026-10-18 | Free |
| [FASB Statement No. 2, ¶12](https://storage.fasb.org/fas2.pdf) | "All research and development costs encompassed by this Statement shall be charged to expense when incurred." | Same document (PDF) | 2026-10-18 | Free |
| [SEC Release 33-10751 (January 2020)](https://www.sec.gov/rules/interp/2020/33-10751.pdf) | A key performance indicator in MD&A needs "a clear definition of the metric and how it is calculated", why it is useful, and how management uses it | Same document (PDF) | 2026-10-18 | Free |
| [17 CFR §230.506(b)(2)(i)](https://www.law.cornell.edu/cfr/text/17/230.506) | Rule 506(b): "no more than, or the issuer reasonably believes that there are no more than, 35 purchasers of securities from the issuer" | 17 CFR, Cornell LII | 2026-10-18 | Free |
| [17 CFR §230.506(c)(2)(i)–(ii)](https://www.law.cornell.edu/cfr/text/17/230.506) | Rule 506(c): "All purchasers of securities sold in any offering under paragraph (c) of this section are accredited investors." | As above | 2026-10-18 | Free |
| [17 CFR §230.501(a)(5), (a)(6), (e)(1)(iv)](https://www.law.cornell.edu/cfr/text/17/230.501) | The accredited investor net worth test ("exceeds $1,000,000") and income test ("in excess of $200,000 in each of the two most recent years"), and their exclusion from Rule 506(b)'s count | 17 CFR, Cornell LII | 2026-10-18 | Free |
| [17 CFR §230.502(c), (d)](https://www.law.cornell.edu/cfr/text/17/230.502) | No sale "by any form of general solicitation or general advertising"; securities bought "cannot be resold without registration under the Act or an exemption therefrom." | 17 CFR, Cornell LII | 2026-10-18 | Free |
| [17 CFR §230.503(a)(1)](https://www.law.cornell.edu/cfr/text/17/230.503) | Form D is due "no later than 15 calendar days after the first sale of securities in the offering" | 17 CFR, Cornell LII | 2026-10-18 | Free |
| [17 CFR §230.701(d)(2)](https://www.law.cornell.edu/cfr/text/17/230.701) | Rule 701 caps "the aggregate sales price or amount of securities sold in reliance on this section during any consecutive 12-month period" | 17 CFR, Cornell LII | 2026-10-18 | Free |
| [17 CFR §227.100(a)(1), (a)(2)(i)](https://www.law.cornell.edu/cfr/text/17/227.100) | Regulation Crowdfunding: an issuer's raise "shall not exceed $5,000,000" in 12 months, and what a non-accredited investor may put in | 17 CFR, Cornell LII | 2026-10-18 | Free |
| [SEC, Private placements — Rule 506(b)](https://www.sec.gov/resources-small-businesses/exempt-offerings/private-placements-rule-506b) | Form D is filed "within 15 days after the first sale of securities in the offering" | Same page | 2026-10-18 | Free |
| [SEC, General solicitation — Rule 506(c)](https://www.sec.gov/resources-small-businesses/exempt-offerings/general-solicitation-rule-506c) | Rule 506(c) "permits issuers to broadly solicit and generally advertise an offering" | Same page | 2026-10-18 | Free |
| [SEC, Regulation Crowdfunding](https://www.sec.gov/resources-small-businesses/exempt-offerings/regulation-crowdfunding) | The rules "permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period" | Same page | 2026-10-18 | Free |
| [SEC, Filing a Form D notice](https://www.sec.gov/resources-small-businesses/exempt-offerings/filing-form-d-notice) | Form D "must be filed online using the SEC's EDGAR" | Same page | 2026-10-18 | Free |

A note on Statement 168. Its ¶6, quoted above, reads "Rules and interpretive releases of the SEC under
federal securities laws." The Statement's own summary and ASC 105-10-05-1 say "under authority of
federal securities laws." Both wordings are FASB's, and the quote keeps ¶6's because ¶6 is what it cites.

Topic-level pointers used without quotation, because the claim is the topic rather than a paragraph:
ASC [205](https://asc.fasb.org/205/tableOfContent), [210](https://asc.fasb.org/210/tableOfContent),
[220](https://asc.fasb.org/220/tableOfContent), [235](https://asc.fasb.org/235/tableOfContent),
[250](https://asc.fasb.org/250/tableOfContent), [270](https://asc.fasb.org/270/tableOfContent),
[280](https://asc.fasb.org/280/tableOfContent), [310](https://asc.fasb.org/310/tableOfContent),
[323](https://asc.fasb.org/323/tableOfContent), [326](https://asc.fasb.org/326/tableOfContent),
[330](https://asc.fasb.org/330/tableOfContent), [340](https://asc.fasb.org/340/tableOfContent),
[350](https://asc.fasb.org/350/tableOfContent), [360](https://asc.fasb.org/360/tableOfContent),
[405](https://asc.fasb.org/405/tableOfContent), [450](https://asc.fasb.org/450/tableOfContent),
[505](https://asc.fasb.org/505/tableOfContent), [740](https://asc.fasb.org/740/tableOfContent),
[810](https://asc.fasb.org/810/tableOfContent), [830](https://asc.fasb.org/830/tableOfContent),
[842](https://asc.fasb.org/842/tableOfContent), [855](https://asc.fasb.org/855/tableOfContent).

---

## Background reading

The course links Wikipedia articles beside the rules as background, never as the authority for one.
Each was opened on 2026-10-18 and its subject confirmed. Where an article and the Codification differ,
the Codification governs. ("Lower of cost or market," for one, describes the measurement US GAAP
replaced for FIFO and average-cost inventory with ASU 2015-11; LIFO and the retail method still use it.)

[Double-entry bookkeeping](https://en.wikipedia.org/wiki/Double-entry_bookkeeping) ·
[Bookkeeping](https://en.wikipedia.org/wiki/Bookkeeping) ·
[Accounting equation](https://en.wikipedia.org/wiki/Accounting_equation) ·
[Chart of accounts](https://en.wikipedia.org/wiki/Chart_of_accounts) ·
[Debits and credits](https://en.wikipedia.org/wiki/Debits_and_credits) ·
[General ledger](https://en.wikipedia.org/wiki/General_ledger) ·
[Trial balance](https://en.wikipedia.org/wiki/Trial_balance) ·
[Accrual](https://en.wikipedia.org/wiki/Accrual) ·
[Deferral](https://en.wikipedia.org/wiki/Deferral) ·
[Matching principle](https://en.wikipedia.org/wiki/Matching_principle) ·
[Adjusting entries](https://en.wikipedia.org/wiki/Adjusting_entries) ·
[Closing entries](https://en.wikipedia.org/wiki/Closing_entries) ·
[Income statement](https://en.wikipedia.org/wiki/Income_statement) ·
[Balance sheet](https://en.wikipedia.org/wiki/Balance_sheet) ·
[Cash flow statement](https://en.wikipedia.org/wiki/Cash_flow_statement) ·
[Reconciliation (accounting)](https://en.wikipedia.org/wiki/Reconciliation_(accounting)) ·
[Revenue recognition](https://en.wikipedia.org/wiki/Revenue_recognition) ·
[Depreciation](https://en.wikipedia.org/wiki/Depreciation) ·
[Fixed asset](https://en.wikipedia.org/wiki/Fixed_asset) ·
[Capital expenditure](https://en.wikipedia.org/wiki/Capital_expenditure) ·
[Cost of goods sold](https://en.wikipedia.org/wiki/Cost_of_goods_sold) ·
[FIFO and LIFO accounting](https://en.wikipedia.org/wiki/FIFO_and_LIFO_accounting) ·
[Inventory valuation](https://en.wikipedia.org/wiki/Inventory_valuation) ·
[Lower of cost or market](https://en.wikipedia.org/wiki/Lower_of_cost_or_market)

---

## Metrics are not GAAP

Some of what is in [Metric definitions](https://lopifi.com/md/docs/domain/metrics) is a **non-GAAP financial measure** in the SEC's
sense: a measure of performance, position or cash flow that adjusts a GAAP figure, such as EBITDA and
adjusted EBITDA, adjusted net income, free cash flow or net debt. Not all of it is. A ratio computed only
from GAAP figures (gross margin, the current ratio, DSO) isn't a non-GAAP measure, and neither is an
operating metric that isn't a financial measure at all (customer count, churn rate, headcount). ARR and
burn sit in between, and a filer should take advice on them. Nothing here is wrong to use. These are
often the most useful numbers a company has. For anyone who files, though, publishing a non-GAAP one
carries a legal obligation.

> A reconciliation (by schedule or other clearly understandable method), which shall be quantitative
> for historical non-GAAP measures presented …
>
> — [Regulation G, SEC Release 33-8176 (January 2003)](https://www.sec.gov/rule-release/33-8176)

Every metric component in this system states its formula and its inputs and never borrows the look of
a statement line, whether or not the metric is non-GAAP. The glossary carries the Reg G citation on the
metric terms for the same reason. The rule applies when the metric is a non-GAAP measure and the company
publishing it is a registrant.

---

## What this document is not

It's not accounting advice, and it doesn't replace the standard. The Codification runs to thousands of
pages of judgment no component library can encode. A contract with variable consideration, a lease with
a renewal option or a functional currency that isn't obvious is a question for the standard and a
qualified accountant, not a React component.

What this system does is refuse to render things that are wrong under any reading: revenue that is a
deposit, a null balance shown as `$0.00`, a posted entry with an edit affordance. Those errors get past
review because the screen looks finished.

---

## See also

- [Accounting model](https://lopifi.com/md/docs/domain/accounting-model) — double-entry, normal balances, the sign problem
- [Statement semantics](https://lopifi.com/md/docs/domain/statement-semantics) — what each statement asserts and how they articulate
- [Schedules & accruals](https://lopifi.com/md/docs/domain/schedules-and-accruals) — the schedules behind the adjusting entries
- [Lexicon](https://lopifi.com/md/docs/domain/lexicon) — every term, with its authority
- [Metric definitions](https://lopifi.com/md/docs/domain/metrics) — the non-GAAP layer, with its formulas