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In present times, every business has a number of facets associated with it and a wider group has control over it. Hence, gone are the days when a singular financial report would serve the purpose of a particular industry. With shareholders, directors, investors, consumers and employees increasing with every passing day, it is imperative that every group has a clear knowledge of financial deals that are being cracked and total monetary amount that is being presented.
Given such a scenario, it is important that there be a common terminology while creating this financial report, that is easily understandable by every group.
Based on scientific analysis and various studies associated with Accounting, the Generally Accepted Accounting Principles (GAAP) is said to be a series of rules and regulations that are followed while preparing financial statements. These rules are set in a uniform manner and report that is prepared with the help of these points are forwarded to every group and understood by people on a general note.
Since the report is a generalized report, hence various categories of people who are associated with that business institution, can understand and discuss it on a singular platform, without having any higher edge.
As per the conditions laid forth by American Institute of Certified Public Accountants (AI CPA), the best part of GAAP is that they are generally acceptable by the masses and have a certain level of authority associated with them.
However, it should follow 3 points:
- It should be objective
- It should be feasible
- It should be relevant to the context
Once these points are assured, GAAP will help in building a perfect theoretical idea in the minds of one and all.
Given that accounting is a systematic body, there are certain conventions and concepts that are to be strictly followed. Only when this is done both accountant, and the concerned person can be on the same page and the cause and effect relation can be actualized.
Also, it is to be noted that principles that are followed in accounting are not static hence with legal, human, social and economic changes even these undergo a change. Certain assumptions, rules, and recording business are made that help in managing the basic structure of this concept.
Given such a scenario, it is imperative that you check out how GAAP rules are to be followed for getting an ideal accounting report for general usage.
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- Business entity concept
- Money measurement concept
- Going concern concept
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