The accounting principles are generally termed as ‘Generally Accepted Accounting Principles or simply GAAP.Īccounting principles help to convey standardization in accounting and preparing financial statements and it is applied worldwide. Accounting principles are the initial guidelines for recording and preparing financial statements. The accounting principle states the common rules or regulations for recording financial transactions and making financial statements. These financial statements are used by both internal stakeholders as well as external stakeholders like the investors, tax authorities, regulators, banks, and other users. By recording all the financial transactions, accounting helps in ascertaining the financial performance of the business by preparing financial statements. With the business requirements of modern times businesses, business and accounting go hand in hand, they cannot function without each other.
MEANING OF ACCOUNTINGĪccounting is an important part of every business irrespective of the size of the business entity. Accounting principles include the accounting concepts and conventions that help to understand the financial statements and help the management to make reliable decisions.
As an outcome, financial data becomes incomparable and difficult to understand. It becomes almost unachievable for a business to compare and understand the statements of other companies. If each business makes the financial statement in their method, then there will be an enormous amount of financial statement formats trying to reflect similar information. Accounting principles help to fill the gap and focus to bring some level of standardization in financial reporting.
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