Gaap Meaning And Nature Assignment Help | Gaap Meaning And Nature Homework Help

(G.A.A.P.) Necessity, Meaning and Nature.

Generally accepted accounting principles (G.A.A.P.) are a set of rules or practices that are recognized as a general guide for financial reporting purposes. Accounting information is useful to it users only if it is recorded and reported objectively. i.e., when it is free from bias or personal judgments. Accounting information must be consistent and comparable, too. In the absence of specific rules, it would be difficult for accountants to decided how exactly a particular business transaction should be recorded and then reported in the financial statements – the balance sheet and the profit and loss account. In such a situation, each business enterprise in the same industry might develop its own accounting rules or methods and, therefore, would be free to report the accounting data in a manner that suits it. In such a situation, the accounting information would tend to be biased, inconsistent, and consequently unreliable and incomparable. That is why some guidelines are absolutely necessary so that the business transactions are not simply recorded properly but the accounting information reported through financial statements prepared by various enterprises in the same industry is comparable. These rules are called the accounting principles. Other terms used for accounting principles have included concepts, conventions, postulates, techniques, axioms etc. The essential feature of accounting principles is that they are flexible rather than precise or rigid. Accounting principles are man-made and are derived from experience and reason. Accounting principles are judged on their general acceptability rather than universal acceptability to the makers and users of the financial statements. Generally Accepted Accounting principles (G.A.A.P.) Generally accepted means that these principles must have substantial or solid authoritative support, that usually comes from the professional accounting bodies like Financial Accounting Standard Board, U.S.A. Accounting Standards Committee India, Securities and Exchange Board of India, Companies Act and so on. It is a technical accounting term that describes the basic rules, concept, conventions and procedures that represent accepted accounting principles, APB (Accounting Principles Board) in statement No. 4 (1970) of the AICPA stated that: “generally accepted accounting principles incorporate the consensus at any time as to which economic resources and obligations should be recorded as assets and liabilities, which changes them should be recorded, how the recorded assets and liabilities and changes in them should be measured, what information should be disclosed and how it should be disclosed and which financial statements should be prepared.”

Generally accepted accounting principles include not only accounting principles but various procedures for applying these principles. Generally accepted accounting principles are, therefore, ground rules of the accounting so that similar economics events will be reported by every one. “Since everyone must follow G.A.A.P., the result in a consistent system of financial reporting that provides the users of financial statements with accounting information that is reliable, understandable, and comparable to prior years and among business firms.”

For more help in (G.A.A.P.) Necessity, Meaning and Nature click the button below to submit your homework assignment