Statement of Financial Accounting Standards - SFAS

The U.S. Constitution sets the broad outline of how the federal government works. You can get a good idea of how to play baseball by reading the MLB's official rule book. And if you want to know the basic rules that you should follow as an accountant, look no further than the statement of financial accounting standards.

It lays down the broad strokes on how books should be kept for U.S. companies. The document is put out by the Financial Accounting Standards Board, or FASB...the same group of party animals responsible for the generally accepted accounting principles (GAAP) that dictate how accounting should be done in the U.S.

The goal of all these accounting rules (the SFAS and the GAAP) are to make it possible to compare results between companies. Since everyone treats almost every situation in the same way, investors and managers can read the books for any company and understand what's going on. These documents basically provide a kind of grammar textbook for writing financial statements.

The SFAS provides guidelines on how certain accounting situations should be interpreted. It includes general accounting rules (stuff applicable to almost any company), as well as items that only really come up in certain industries.