Financial Accounting

2 CHAPTER

Generally Accepted Accounting Principles

MEANING OF ‘GENERALLY ACCEPTED ACCOUNTING PRINCIPLES’ (GAAP)

Generally Accepted Accounting Principles may be defined as those rules of action or conduct which are derived from experience and practice and when they prove useful, they become accepted as principles of accounting. According to the American Institute of Certified Public Accountants (AICPA), the principles which have substantial authoritative support become a part of the generally accepted accounting principles.

The general acceptance of the accounting principles or practices depends upon how well they meet the following three criteria:

1. Relevance A principle is relevant to the extent it results in information that is meaningful and ...