Generally Accepted Accounting Principles (GAAP) and Basic Accounting Concepts
Generally Accepted Accounting Principles- Introduction and Overview
After going through this lesson, you shall be able to understand the following concepts.
✶ Introduction to GAAP
✶ Need for Accounting Principles
✶ Characteristics of Accounting Principles
✶ Accounting Concepts & Conventions
Introduction to GAAP
Generally Accepted Accounting Principles (GAAPs) are a set of basic rules and procedures prescribed by the Institute of Chartered Accountants of India (ICAI) which have to be followed while preparing financial statements. These are the accounting principles, concepts and conventions which ensure that financial reporting is transparent and consistent from one organisation to another. The management and the auditors are bound by the Companies Act of 2013 to follow GAAPs.
According to The American Institute of Certified Public Accountants “Principles of Accounting are the general law or rule adopted or proposed as a guide to action, a settled ground or basis of conduct or practice”
Need For Accounting Principles
The basic objective of accounting is to communicate information about the financial well-being of an enterprise to the users of the financial statements. As the accounting principles and assumptions followed across various enterprises are different due to biases and difference of opinion between the accountants. This gives rise to the need for a set of universally accepted guidelines and rules which help in making financial results of various enterprises comparable across industries and time period. In today’s dynamic environment the needs and expectations of businesses from accounting keep on changing, hence the accounting principles have to be developed and changed according to the needs of business.
Characteristics of Accounting Principles
1. Flexible in Nature: As we know businesses operate in a dynamic environment and in order to keep up with the ever changing needs of the business world and economy, the principles of accounting must be flexible in nature.
2. Man-made: T…
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