Explain the role of accounting principles in preparation of financial accounts
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Generally accepted accounting principles (GAAP) are a common set of accounting rules and standards that dictate how financial statements are prepared. Public companies, nonprofit organizations, and government entities are required to prepare financial statements in accordance with GAAP. These guidelines were developed over time by the Financial Accounting Standards Board (FASB), and the American Institute of Certified Public Accountants (AICPA).
Principles covered by GAAP
GAAP encompasses a wide range of accounting practices and philosophies. Some key areas covered by GAAP include:
Recognition: How assets, liabilities, revenues, and expenses are recognized on financial statementsMeasurement: How profits and losses are measured and reported on financial statementsPresentation: How information needs to be presented on financial statementsDisclosure: What information needs to be shared on financial statements
Principles covered by GAAP
GAAP encompasses a wide range of accounting practices and philosophies. Some key areas covered by GAAP include:
Recognition: How assets, liabilities, revenues, and expenses are recognized on financial statementsMeasurement: How profits and losses are measured and reported on financial statementsPresentation: How information needs to be presented on financial statementsDisclosure: What information needs to be shared on financial statements
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