Generally Accepted Accounting Principles

Generally Accepted Accounting Principles (GAAP) or Accounting Principles

• GAAP is a collection of commonly followed Accounting Rules and Guidelines for financial
reporting having universal applicability.

'Accounting Principles'
• Accounting principles are the rules and guidelines that Companies must follow when
reporting financial data. The common set of U.S. Accounting Principles is the Generally
Accepted Accounting Principles (GAAP).

Accounting Conventions us
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• This is the method or custom or traditions in which the accountants following for the
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preparation of accounting statements. These procedures are emerging out of usage or

custom.
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Accounting Standards
• Accounting standard is a “common set of accounting policies and guidelines based on the
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principles and methods of accounting to be followed to have uniformity in terminology,

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approach and presentation of results”

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• Accounting standards improve the transparency of financial reporting in all countries

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Accounting Policies
• The method adopted by each enterprise for applying the accounting principles in to
practice.
Money Measurement Concept:
• Transactions involving money or money’s worth will be recorded in the books of the
business.
• Quality, Experience of the employees, Quantity of Raw material, Barter Transactions cannot
be recorded in the books of accounts.
• Accounting records only those transactions that can be expressed in terms of money.

Dual Aspect
• According to this concept, every transaction has two aspect, a receiving aspect and a giving
aspect.

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• The receiving aspect is called debit and giving aspect is called credit.
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Asset = Liabilities + Capital

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Historical Cost
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• This principle require that all transactions should be recorded at their acquisition cost.
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• As per this principle, the cost of acquisition includes cost of purchase + Expenses incurred
on bringing them in to business location and make them ready to use.
• Transportation Charge, Loading Charge, Installation Charge etc. are added to Machinery's
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original Cost according to this concept.

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Accounting Period:
• The business has an indefinite life, the business man must stop and see the financial
position and profit or loss at regular intervals in order to take right decisions.
• The period for which the accounts are prepared and analysed is known as Accounting
Period or financial year, normally one year.
Full Disclosure:-
• It demands that accounting Statement should disclose all the material facts about the
business for the benefit of the users. It means that the Profit and Loss A/C and Balance
sheet of the business should disclose the true state of affairs of the business.
• The practice of giving explanatory statement along with accounting statement such as
• Method of Valuation of stock,
• Calculation of Depreciation,
• Contingent assets, Contingent liabilities, Debts due by Directors etc. are done for
convention of Full Disclosure.
“Prudence” or Principle of Conservatism
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• The principle states that while recording the business transaction, all anticipated profits are
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not to be considered but considered all the possible losses. The policy is “playing safe”
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Eg: Closing stock is valued at cost price or market price whichever is less,
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• Depreciation charged,
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• Provisions and reserves created,

• Profit on sale of fixed asset is transferred to capital Reserve etc.
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Materiality:-
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• Under this principle important material facts should be attached to the financial statements
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and insignificant or unimportant matters should be avoided.

• Figures may be rounded up to nearest ten or hundred, paisa figures avoided are done under
this principle.
• Small Items purchased for long term use like Stapler, Punch etc. is considered as revenue
expenditure asper this concept
Accounting
Matching Principle Timeliness
Period Concept
Verifiable Objectives Accrual Concept
Full Disclosure Principle Modifying
Principles

Accounting Principles Rules and Guidelines

Assumptions, or
Accounting Concepts
conditions

Accounting Conventions Method or custom or

traditions
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Common policies or
Accounting Standards
Guidelines of accounting
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to have uniformity
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Accounting Policies Applying the accounting

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principles into practice

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Indian Accounting Standards:

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• In India "The Institute of Chartered Accounts of India"(ICAI) has constituted accounting

Standard Board (ASB) in 21-4-1977.
• Indian accounting standards are the Accounting standard adopted by companies in India
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and issued under the supervision and control of Accounting Standards Board (ASB), which
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was constituted in the year 1977.

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• The purpose of ASB is to formulate and publish accounting Standards.

• "Accounting standards are codified statements of accounting rules and regulations for
preparing financial statements in a consistent manner.
• In India, Accounting Standards are issued by the Institute of Chartered Accountants of India.
 AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employee Benefits
AS 16 Borrowing Cost
AS 19 Leases
AS 20 Earning Per Share
AS 21 Consolidated Financial Statements
AS 22 Accounting Income Tax
AS 26 Intangible Assets
AS 29 Provisions, Contingent Assets , Contingent Liabilities

• In 2001 IAS was replaced by IFRS

• IFRS (International Financial Reporting Standards):-
• There are 17 IFRS us
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• IFRS 1 First-time Adoption of International Financial Reporting Standards
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• IFRS 2 Share-based Payment

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• IFRS 3 Business Combinations

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IFRS 4 Insurance Contracts

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• IFRS 5 Non-cash Assets Held for Sale and Discontinued Operations

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• IFRS 6 Exploration for and Evaluation of Mineral Resources

• IFRS 7 Financial Instruments: Disclosures
• IFRS 8 Operating Segments
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• IFRS 9 Financial Instruments

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• IFRS 10 Consolidated Financial Statements

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• IFRS 11 Joint Arrangements

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• IFRS 12 Disclosure of Interests in Other Entities

• IFRS 13 Fair Value Measurement
• IFRS 14 Regulatory Deferral Accounts
• IFRS 15 Revenue from Contracts with Customers
• IFRS 16 Leases
• IFRS 17 Insurance Contracts