Gaap

Generally accepted accounting principles is a technical accounting term that is a combination of authoritative standards. The standards are rules and procedures necessary to define acceptable accounting principles at any particular time for a company and simply the commonly accepted ways of recording and reporting accounting information. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. (Wileys Book)

The Financial Accounting Standards Board known as FASB has a set of Accounting Standards Codification that is the source of authoritative GAAP. FASB has been the organization in the private sector for forming standards of financial accounting that governs the preparation of financial reports for nongovernmental agencies. Its mission is to provide useful information to investors and other users of financial reports. (http://www.fasb.org/facts/index.shtml)

Some corporations have a complex capital structure that includes outstanding convertible securities or contingent shares that could have a dilutive effect on earnings per share. These securities are referred to as potential common shares. A corporation with a complex capital structure is required to report two earnings per share amounts on the face of its income statement. The two amounts are basic earnings per share and diluted earnings per share. The amount for diluted earnings per share shows the earnings per share after including all potential common shares that would reduce earnings per share. To be included in the diluted earnings per share calculation, any potential common share must have a dilutive effect on earnings per share. When a corporation reports its basic and diluted earnings per share on its income statement, it also is required to make additional disclosures in the notes to its financial statements. (text)

Basic earnings per share is reported on a corporation's income statement directly below net income. Preferred dividends are...