Gaap - Meaning of Generally Accepted Accounting Principles GAAP is a collection of methods used to process prepare and present public accounting

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Meaning of Generally Accepted Accounting Principles GAAP is a collection of methods used to process, prepare, and present public accounting information. GAAP is overall very general in method and is in accordance with the user of that information. These principles provide the general framework for dertermining what information is included in financial statements i-e, income statement, balance sheet etc and how this information is to be presented. Some criteria for gaap Relevance means that the information presented in financial statements (and other public statements) should be appropriate and assist a person evaluating the statements to make educated guesses regarding the future financial state of a company. Reliability means simply that the information presented in financial statements is reliable and verifiable by an independent party. Basically a company must confirm that if an independent auditor were to base their reports off of the same information that they would come up with the same results. Following this generally accepted accounting principle (GAAP) also means that the company is representing a clear picture of what really happened (and is happening) with their company. Comparability is one of the most important GAAP categories and one of the main reasons having something similar to GAAP is necessary. By ensuring comparability, a company’s financial statements and other documentation can be compared to similar businesses within its industry. The importance of this principle cannot be overstated, as without comparability investors would be unable to discern differences between companies within an industry to benchmark how a company is doing compared to its pe ers Feasibility A principle is feasibile to the extent it can be implemented without much complexity or cost. Principle of Accounting There are 12 basic principles of accounting which are as follows Business Entity Princip le:-The accountant keeps all of the business transactions separate from the business owner's personal transactions. For legal purposes, a sole proprietorship and its owner are considered to be one entity, but for accounting purposes they are considered to be two separate entities. For example If the owner mix his or her personal transaction with his business then it would be difficult to describe clearly the financial activities of the business. In such case if there is any mishap/miscalculation in the transactions then profit of the business might be understated or overstated . 1.
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This note was uploaded on 03/07/2012 for the course FINANCE 280 taught by Professor Saira during the Spring '12 term at IMSciences.

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Gaap - Meaning of Generally Accepted Accounting Principles GAAP is a collection of methods used to process prepare and present public accounting

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