GAAP (Generally

Accepted Accounting
Principles)
GAAP (Generally Accepted Accounting
Principles):

The rules that govern accounting are

called GAAP (Generally Accepted
Accounting Principles).
 The GAAP principles are divided into two categories:

1. Accounting Concepts: Accounting Concepts are

basic assumptions or conditions upon which science
of accounting is based.

2. Accounting Conventions: Accounting

Conventions include those customs and traditions
which are followed up by an accountant while
preparing a financial statement.
ACCOUNTING CONCEPTS
Accounting Concept Includes:

Separate Entity Concept

◻ It is helpful in keeping the business affairs strictly free

from the effect of the private affairs of the
proprietor(s).

◻ Amount invested by the proprietor is shown as “

Liability”.

◻ Amount paid for the personal expenses of the proprietor

are shown as drawings from the capital of the proprietor.
ACCOUNTING CONCEPTS
Money Measurement Concept

Only the transactions which can be recorded in terms

of money are recorded.

This is being used so as to provide a common

yardstick (i.e.
money) for measurement.
ACCOUNTING CONCEPTS
Dual Aspect Concept (IMP)

🞭 Every business transaction has a dual affect i.e. it affects

two accounts.

🞭 This is based on accounting equation:

Liabilities = Assets.

🞭 Owner’s equity + Outsider’s equity = Assets.

🞭 This equation can be explained as “for every debit there

is an equivalent credit”.
ACCOUNTING CONCEPTS
MATCHING CONCEPT

It is the basis for recording expenses and includes two

steps:

1. Identify all the expenses incurred during

the accounting period.

2. Measure the expenses and the match the expenses

against the revenues earned.

Revenues – Cost = Net income or Profit.

ACCOUNTING CONCEPTS
GOING CONCERN CONCEPT

Business would continue to operate

indefinitely in the future. Business
will not cease doing business, neither;
it will sell its assets to pay off its
liabilities.
ACCOUNTING CONCEPTS
Cost Concept

Assets and liabilities should be recorded at

the historical cost i.e. costs as on
acquisition.
 ACCOUNTING CONCEPTS

Accounting Period Concept

Accounting period is the span of time, at the end of

which financial statements are prepared to throw
light on the
results of the operations at the end of a relevant
period and the financial position at the end of a
relevant period.
ACCOUNTING CONVENTIONS
1) FULL DISCLOSURE

Financial statements should be honestly prepared and

sufficiently, disclose information which is of material
interest to proprietors,
present and potential creditors and investors.
 ACCOUNTING CONVENTIONS

4) MATERIALITY

Only material or significant details are to be recorded

leaving the insignificant or minute details. This is done
to prevent
overburdening of accounts.