Explain Generally Accepted Accounting Principles (GAAP)?

1343 Words6 Pages
1. Explain Generally accepted accounting principles (GAAP)?
Generally accepted accounting principles (GAAP) are the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice.
The following is a list of the ten main accounting principles and guidelines together with a highly condensed explanation of each.
a. Economic Entity Assumption
The economic entity principle states that the recorded activities of a business entity will be kept separate from the recorded activities of its owner(s) and any other business entities. This means that you must maintain separate accounting records and bank accounts for each entity, and not intermix with them the assets and liabilities of its owners or business partners. Also, you must associate every business transaction with an entity. A business entity can take a variety of forms, such as a sole proprietorship, partnership, corporation, or government agency. It is customary to consider a commonly-owned group of business entities to be a single entity for the purposes of creating consolidated financial statements for the group, so the principle could be considered to apply to the entire group as though it were a single unit. The economic entity principle is a particular concern when businesses are just being started, for that is when the owners are most likely to commingle their funds with those of the business.
b. Monetary Unit Assumption
Open Document