CPIM Practice Exam

What refers to accounting practices that adhere to generally accepted conventions?

1. Standard costing

2. Job costing

3. Generally Accepted Accounting Principles (GAAP)

4. Variance accounting

The correct answer is: Generally Accepted Accounting Principles (GAAP)

The concept that refers to accounting practices adhering to generally accepted conventions is Generally Accepted Accounting Principles (GAAP). GAAP encompasses a framework of accounting standards, principles, and procedures that companies must follow when compiling their financial statements. The main purpose of GAAP is to ensure that financial reporting is transparent, consistent, and comparable across different organizations. This allows stakeholders such as investors, creditors, and regulatory bodies to better understand and analyze the financial health of a company. Standard costing, job costing, and variance accounting represent specific methods and techniques within accounting but do not encompass the broader set of guidelines that GAAP provides. Standard costing is a management accounting technique used to estimate the expected costs of production, job costing pertains to the costs associated with specific jobs or projects, and variance accounting focuses on analyzing differences between expected and actual performance related to costs and revenues. While these methods can be used within the framework of GAAP, they do not themselves represent the accepted conventions in accounting.