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Syed Behroz Ali Rizvi

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Generally Accepted Accounting Principles are those guidelines which gives clarity to the financial statements and protect the interest of the share holders and other stake holders of the firm.

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Page 1: GAAP (Generally Accepted Accounting Principles)

Syed Behroz Ali Rizvi

Page 2: GAAP (Generally Accepted Accounting Principles)

G.A.A.PG.A.A.P

• G generally

• A accepted

• A accounting

• P principles

Page 3: GAAP (Generally Accepted Accounting Principles)

OutlineOutline

What is G.A.A.P?What is G.A.A.P? Why these principles are necessary to Why these principles are necessary to

follow?follow? Third party satisfactionThird party satisfaction PrinciplesPrinciples ConclusionConclusion

Page 4: GAAP (Generally Accepted Accounting Principles)

What is G.A.A.P?What is G.A.A.P?

Generally Accepted Accounting Principles Generally Accepted Accounting Principles are the set of rules and regulations through are the set of rules and regulations through firms and corporations prepare and present firms and corporations prepare and present their assets and liabilities and all incomes their assets and liabilities and all incomes and expenses in financial statements.and expenses in financial statements.

Page 5: GAAP (Generally Accepted Accounting Principles)

Why these principles are Why these principles are necessary to follow?necessary to follow?

These principles are necessary to follow because it These principles are necessary to follow because it helps a lot in making long term decisions, helps a lot in making long term decisions, financial decisions and maintaining records. It financial decisions and maintaining records. It makes easy to compare financial statements of makes easy to compare financial statements of different companies.different companies.

Page 6: GAAP (Generally Accepted Accounting Principles)

Third Party Satisfaction

Third parties like creditors, banks, share holders etc must have to rely on reported financial statements so it must be free of errors, inconsistency and bias .It could only be possible by following G.A.A.P.

Page 7: GAAP (Generally Accepted Accounting Principles)

Historical Cost PrincipleHistorical Cost Principle

It means that fixed assets must be reported in It means that fixed assets must be reported in financial statements on the cost on which they financial statements on the cost on which they were purchased.were purchased.

Fixed assets should not be recorded on their Fixed assets should not be recorded on their market value.market value.

Book Value + Depreciation = CostBook Value + Depreciation = Cost

Page 8: GAAP (Generally Accepted Accounting Principles)

Principle Of PrudencePrinciple Of Prudence

In the principle of In the principle of prudence any prudence any person should not person should not try to make things try to make things look prettier than look prettier than they are originally. they are originally. One must not One must not exaggerate any exaggerate any thing. thing.

Page 9: GAAP (Generally Accepted Accounting Principles)

Principle Of Full DisclosurePrinciple Of Full Disclosure

All necessary information must be All necessary information must be reported in the financial statements.reported in the financial statements.

Page 10: GAAP (Generally Accepted Accounting Principles)

Principle Of ConsistencyPrinciple Of Consistency

It means that when business has fixed It means that when business has fixed a method for the treatment of an a method for the treatment of an item, so it should include all items item, so it should include all items that follow in same manner.that follow in same manner.

Page 11: GAAP (Generally Accepted Accounting Principles)

Revenue Recognition PrincipleRevenue Recognition Principle

According to this principle revenues are According to this principle revenues are recognized if realized or realizable or if recognized if realized or realizable or if goods transferred or services rendered, no goods transferred or services rendered, no matter cash is received or not.matter cash is received or not.

Page 12: GAAP (Generally Accepted Accounting Principles)

Monetary Unit PrincipleMonetary Unit Principle

• It means that the accounting records must It means that the accounting records must be kept or defined in monetary units i.e. be kept or defined in monetary units i.e. currency.currency.

Page 13: GAAP (Generally Accepted Accounting Principles)

Principle Of PeriodicityPrinciple Of Periodicity

Each and every Each and every accounting entry accounting entry should be allocated should be allocated a defined a defined accounting period.accounting period.

Financial

Statement

2011

Rent Paid For

The Month Of

January 2011

InsurancePremium

Paid For

JanuaryTo

June 2011

Wages Paid For

The

Month Of

February 2011

Page 14: GAAP (Generally Accepted Accounting Principles)

Matching PrincipleMatching Principle

► Matching principle defines that we must Matching principle defines that we must charge the expenses for any particular charge the expenses for any particular period against the revenues of that period against the revenues of that particular period.particular period.

Expenses 2011 Revenues 2011

Page 15: GAAP (Generally Accepted Accounting Principles)

I have concluded that generally accepted accounting principles are necessary for smooth working of accounting work and specially helpful for creditors, insurers and all stake holders.

Page 16: GAAP (Generally Accepted Accounting Principles)

Questions & Queries

Please do ask

If you have any question related to presentation

Any ambiguity related to presentation

Page 17: GAAP (Generally Accepted Accounting Principles)

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