Accounting Principles Explained: How They Work, GAAP, IFRS

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This ensures that financial statements are comparable between periods and throughout the company’s history. Comparability means that the user is able to compare the financial statements of one company to those of another company in the same industry. Comparability is enhanced by requiring the use of generally accepted accounting. Accounting principles are defined rules that ensure businesses follow the same financial practices.

Accounting Principles

Here is a list of the four basic accounting concepts and constraints that make up the GAAP framework in the US. CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax.

Moreover, this accounting principle also dictates that if an accountant thinks—based on a business’s financial statements—that they’ll be forced to liquidate, they must disclose this assessment. Moreover, another assumption under this basic accounting principle is that the purchasing power of currency remains static over time. In other words, inflation is not considered in the financial reports of a business, even if that business has existed for decades. In the United States, generally accepted accounting principles (GAAP) are regulated by the Financial Accounting Standards Board (FASB). In Europe and elsewhere, International Financial Reporting Standards (IFRS) are established by the International Accounting Standards Board (IASB).