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GAAP Detailed Notes

Generally Accepted Accounting Principles (GAAP) is a framework of accounting standards that ensures transparency, consistency, and comparability in financial reporting. It includes fundamental principles, key assumptions, and is developed by organizations like FASB and SEC. While GAAP is crucial for uniform financial reporting, it has limitations such as rigidity and complexity for small businesses.

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107 views2 pages

GAAP Detailed Notes

Generally Accepted Accounting Principles (GAAP) is a framework of accounting standards that ensures transparency, consistency, and comparability in financial reporting. It includes fundamental principles, key assumptions, and is developed by organizations like FASB and SEC. While GAAP is crucial for uniform financial reporting, it has limitations such as rigidity and complexity for small businesses.

Uploaded by

Fiaz Ahmed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Generally Accepted Accounting Principles (GAAP)

1. What is GAAP?

GAAP refers to the framework of accounting standards, rules, and procedures used in preparing financial

statements. It ensures financial reporting is transparent, consistent, and comparable across organizations.

2. Objectives of GAAP

- Standardization

- Transparency

- Comparability

- Reliability

3. Structure of GAAP

GAAP includes:

- Basic accounting principles and assumptions

- Accounting standards (e.g., by FASB)

- Industry-specific guidelines

- Legal and regulatory rules

4. Fundamental Principles of GAAP

- Principle of Regularity

- Principle of Consistency

- Principle of Sincerity

- Principle of Permanence of Methods

- Principle of Non-Compensation

- Principle of Prudence

- Principle of Continuity

- Principle of Periodicity

- Principle of Full Disclosure

- Principle of Materiality
Generally Accepted Accounting Principles (GAAP)

5. Key GAAP Assumptions

- Economic Entity Assumption

- Monetary Unit Assumption

- Time Period Assumption

- Going Concern Assumption

6. Bodies Involved in GAAP Development

- FASB (Financial Accounting Standards Board)

- SEC (Securities and Exchange Commission)

- AICPA (American Institute of CPAs)

- IASB (International Accounting Standards Board)

7. GAAP vs. IFRS

GAAP (Used in the U.S.) is rules-based and allows LIFO method.

IFRS (Used globally) is principles-based and disallows LIFO method.

8. Importance of GAAP

- Ensures uniform financial reporting

- Improves comparability

- Builds investor confidence

- Reduces risk of fraud and error

9. Limitations of GAAP

- Can be rigid and inflexible

- Complex for small businesses

- Focuses on historical performance

- Not globally accepted (unlike IFRS)

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