GAAP - Generally Accepted Accounting Principles

Accounting has evolved through time adhering to and responding to the needs of society. As a
new type of transaction emerges in trade and commerce, accountants develop rules, procedures,
and practices for recording them which came to be known as generally accepted accounting
principles. However, financial accounting and management accounting differs with regard to
adapting and reshaping this concept.
As for financial accounting, they are required to conform to the principles stated and mandated
by GAAP, as it is like laws, representing the rules, procedures, practices, and standards followed
in the preparation and presentation of financial statements. The reason that underlies why
financial accounting must adhere to the accounting standards (GAAP) is to easily identify proper
accounting practices and treatment for the preparation and presentation of financial statements to
avoid misinterpretation between preparers and financial users once it is communicated
externally. On the other hand, Management accounting is not bound and required to follow
GAAP since information is collected and presented internally and there is no need for the
financial accounting principles to be followed, they can opt to still use and apply the standards
but it really depends on management’s discretion.