📘 Accounting Principles, Concepts, Standards & Conventions
1. Generally Accepted Accounting Principles (GAAP)
Definition
Generally Accepted Accounting Principles (GAAP) are a set of standardized accounting rules,
procedures, and guidelines that businesses must follow when preparing financial statements.
Details
GAAP ensures that financial statements are consistent, reliable, and comparable across
different companies.
It provides a common language for accountants, auditors, and investors.
Although GAAP varies slightly from country to country, the core principles remain similar.
In the U.S., GAAP is set by the Financial Accounting Standards Board (FASB).
Example
Suppose Company A sells goods worth $10,000 on credit in March but receives payment in
April.
Under GAAP, revenue is recorded in March (when earned), not in April (when cash is
received).
This ensures accurate matching of revenue with expenses and consistency across
businesses.
Table – GAAP Overview
Aspect Explanation Example
Definition Standard accounting rules and guidelines. -
Ensures comparability, consistency, and Investors compare Company A & B
Purpose
transparency. fairly.
Record revenue when earned, not when Sale of $10,000 on credit is recorded
Key Rule
cash is received. immediately.
, 2. Accounting Standards (IFRS/IAS)
Definition
Accounting Standards are authoritative guidelines that prescribe how specific transactions
should be recorded and reported in financial statements.
Details
Globally, most countries follow IFRS (International Financial Reporting Standards)
issued by the IASB.
IAS (International Accounting Standards) were older standards, some of which are still
active.
Standards cover areas like revenue recognition, leases, inventory, and financial
instruments.
Their purpose is to harmonize accounting practices worldwide.
Example
IAS 2 (Inventory): Inventory should be valued at the lower of cost or net realizable
value (NRV).
Suppose a company buys inventory for $50,000, but its market value drops to $45,000 →
inventory should be recorded as $45,000.
Table – IFRS/IAS
Standard Details Example
IFRS International rules for financial reporting. IFRS 16 – Lease accounting.
IAS Older standards (still valid in some areas). IAS 2 – Inventory valuation.
Purpose Global harmonization, comparability. Firms in UK & Japan both use IFRS.
1. Generally Accepted Accounting Principles (GAAP)
Definition
Generally Accepted Accounting Principles (GAAP) are a set of standardized accounting rules,
procedures, and guidelines that businesses must follow when preparing financial statements.
Details
GAAP ensures that financial statements are consistent, reliable, and comparable across
different companies.
It provides a common language for accountants, auditors, and investors.
Although GAAP varies slightly from country to country, the core principles remain similar.
In the U.S., GAAP is set by the Financial Accounting Standards Board (FASB).
Example
Suppose Company A sells goods worth $10,000 on credit in March but receives payment in
April.
Under GAAP, revenue is recorded in March (when earned), not in April (when cash is
received).
This ensures accurate matching of revenue with expenses and consistency across
businesses.
Table – GAAP Overview
Aspect Explanation Example
Definition Standard accounting rules and guidelines. -
Ensures comparability, consistency, and Investors compare Company A & B
Purpose
transparency. fairly.
Record revenue when earned, not when Sale of $10,000 on credit is recorded
Key Rule
cash is received. immediately.
, 2. Accounting Standards (IFRS/IAS)
Definition
Accounting Standards are authoritative guidelines that prescribe how specific transactions
should be recorded and reported in financial statements.
Details
Globally, most countries follow IFRS (International Financial Reporting Standards)
issued by the IASB.
IAS (International Accounting Standards) were older standards, some of which are still
active.
Standards cover areas like revenue recognition, leases, inventory, and financial
instruments.
Their purpose is to harmonize accounting practices worldwide.
Example
IAS 2 (Inventory): Inventory should be valued at the lower of cost or net realizable
value (NRV).
Suppose a company buys inventory for $50,000, but its market value drops to $45,000 →
inventory should be recorded as $45,000.
Table – IFRS/IAS
Standard Details Example
IFRS International rules for financial reporting. IFRS 16 – Lease accounting.
IAS Older standards (still valid in some areas). IAS 2 – Inventory valuation.
Purpose Global harmonization, comparability. Firms in UK & Japan both use IFRS.
