Question

can someone explain the concept of proactive and reactive in accounting? also if GAAP a proactive way ? or reactive ?

Answer 1

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Proactive in Accounting: Proactive accounting allows a business to manage its finance and account effectively. They go deep into the accounts to identify the changes or trend to boost the growth of the business and to make right decision for future uncertainties. This is the out-of-box thinking type of accounting that why some companies also prepare fund flow statement, etc even though it is not compulsory to prepare but for the growth prospective it is good.

Reactive in Accounting: Reactive accounting is done to maintain the legal formalities of the business. This type of accounting shows the data of past and present position of the company only. In this accounting only records are maintain, there is no practicality in the accounts.

GAAP is a reactive way because it provide the framework for accounting rule and standard so that the process of accounting in a country should same and easier for a resident to identify the current position of the company same as the reactive accounting.