GENERALLY ACCEPTED

ACCOUNTING
PRINCIPLES

Presented By: Jyoti

Kumari
 AGENDA OF PRESENTATION
 Introduction to GAAP
 What Does Generally Accepted Accounting Principles - GAAP Mean?
 History of GAAP
 Who sets GAAP?
 Importance of GAAP
 Users of GAAP
i. Private Companies
ii. Public Companies
iii. Government
iv. NPO
 Procedure to set accounting standards
 Accounting principles
i. 10 - Accounting concepts
ii. 4 - Accounting conventions
INTRODUCTION TO ACCOUNTING PRINCIPLES
 Generally accepted accounting principles, or GAAP as
they are more commonly known, are rules for the
preparation of financial statements.
 Every publicly traded company must release their
financial statements each year. These statements are used
by investors, banks and creditors to determine the
financial health of the company and its suitability for
investment or extension of credit.
 In order to properly compare and evaluate companies and
their results, the financial statement must provide similar
information in a similar format.
 Every country has its own generally accepted accounting
principles, and all publicly released financial statements
must comply with these rules.
 WHAT DOES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - GAAP MEAN?

GAAP are a combination

The common set of of authoritative standards
GAAP is a cluster of
accounting principles, (set by policy boards)
accounting standards and
standards and procedures and simply the
common industry usage
that companies use to commonly accepted ways
that have been developed
compile their financial of recording and
over many years.
statements. reporting accounting
information.
 HISTORY OF GAAP

The birth of GAAP standards goes all the way to the 1929 financial crises.
AS a result, the Committee on Accounting Procedure (CAP) came into
action
CAP was then replaced by the Accounting Principle Board (APB)
 In 1973, the APB gave way to the Financial Accounting Standards Board
(FASB)
FABS issued 168 statement of standards as of 06/09.
 WHO SETS GAAP?

Financial Accounting Standards Governmental Accounting

Board (FASB) Standards Board (GASB)

The FASB establishes financial accounting and The GASB establishes accounting and financial
reporting standards for public and private reporting standards for U.S. state and local
companies and not-for-profit organizations. governments that follow GAAP.
 USERS OF GAAP
1.PRIVATE COMPANIES

2.PUBLIC COMPANIES

3.NOT FOR PROFIT

ORGANIZATIONS

4.GOVERNMENT
 GAAP AND PRIVATE COMPANIES
Many private companies, especially those seeking to get
loans, expand their business, or considering going
public, make the decision to use GAAP-based financial
reporting.

GAAP is important to the efficient functioning of the

economy because decisions about the allocation of
resources rely heavily on credible, concise, and
understandable financial information.

“ Because of the credibility provided by GAAP

reporting, private companies may realize greater
flexibility in the types of financing available to them.

”
 GAAP AND STATE AND LOCAL GOVERNMENTS
Preparing a financial report in compliance with
Generally Accepted Accounting Principles (GAAP)
establishes greater accountability and transparency
between a government and its citizens, legislative and
oversight bodies, investors, and creditors.

GAAP-based financial reports provide the public with

the information necessary to assess the accountability of
a government.

“
Preparing a financial report in compliance with GAAP
also can make it less expensive for a government to
borrow money and control its expenses.
 GAAP AND PUBLIC COMPANIES
Domestic companies whose equity and debt securities
are traded on public markets are required to file regular
financial reports with the Securities and Exchange
Commission (SEC) or state regulatory agency that
require Generally Accepted Accounting Principles
(GAAP).

“ By the 1970s, market participants’ thinking

about accounting standard setting evolved, as they
came to believe in the importance of an independent
standard-setting structure.

”
 GAAP AND NOT-FOR-PROFITS
Not-for-profit organizations often find that there are many
advantages to using GAAP—especially those seeking to
expand their capacity to provide services. Without GAAP,
it would be difficult for external users to benchmark a not-
for-profit’s performance against other organizations. The
use of GAAP also facilitates comparison with the for-profit
sectors where relevant, especially in the health care
industry.

“ Through GAAP reporting, not-for-profits may

realize greater flexibility in the types of
resources available to them and in the number
of donors, grantors, and lenders willing to
provide resources.
PROCEDURES TO SET ACCOUNTING AND
FINANCIAL REPORTING STANDARDS:
 ACCOUNTING PRINCIPLES
ACCOUTNIN
G
ACCOUNTING CONCEPT
CONVENTIO
NS

SEPARATE GOING MONEY ACCOUNTING OBJECTIVE

DUAL ASPECT ACCRUAL MATCHING REALISATION FULL
ENTITY CONCERN MEASUREMENT PERIOD COST CONCEPT EVIDENCE CONSISTENCY PRUDENCE MATERIALITY
CONCEPT CONCEPT CONCEPT CONCEPT DISCLOSURE
CONCEPT CONCEPT CONCEPT CONCEPT CONCEPT
1. ACCOUNTING CONCEPT
DEFINITION: It refers to basic assumptions, rules, and principles which
work as the basis of recording of business transactions and preparing
accounts.

OBJECTIVE: To maintain uniformity and consistency in accounting

records.
 2. ACCOUTNING
CONVENTIONS
Accounting conventions are certain guidelines for complicated
and unclear business transactions, though it is not compulsory
or legally binding, however, these generally accepted
principles maintain consistency in financial statements. 
THANKYOU