Accounting principles

Definition of 'Generally Accepted Accounting Principles - GAAP'
The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.
In the U.S., Generally Accepted AccountingPrinciples are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly traded and privately held companies, non-profit organizations, and governments. The term is usually confined to the United States; hence it is commonly abbreviated as US GAAP or simply GAAP. However, in the theoretical sense, Generally Accepted AccountingPrinciples encompass the entire industry of accounting, and not only the United States. Outside the academic context, GAAP means US GAAP.
GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstandingshare measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary!

That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures. So, even when a company uses GAAP, you stillneed to scrutinize its financial statements.

History:
The history of accounting is as old as civilization, key to important phases of history, among the most important professions in economics and business, and fascinating. Accountants participated in the development of cities, trade, and the concepts of wealth and numbers. Accountants invented writing, participated in the development ofmoney and banking, invented double entry bookkeeping that fueled the Italian Renaissance, saved many Industrial Revolution inventors and entrepreneurs from bankruptcy, helped develop the confidence in capital markets necessary for western capitalism, and are central to the information revolution that is transforming the global economy.
There are no household names among the accounting innovators; infact, virtually no names survive before the Italian Renaissance. It took archaeologists to dig up the early history and scholars from many fields to demonstrate the importance of accounting to so many aspects of economics and culture. The role of accountants in the ancient world is coming into clearer focus with new archaeological discoveries and innovative interpretations of the artifacts. It isnow evident that writing developed over 5,000 years--by accountants. It is difficult to overestimate the importance of double entry bookkeeping. It was central to the success of Italian merchants, necessary to the birth of the Renaissance. Industrial Revolution firms required accountants to provide the information necessary to avoid bankruptcy and their role developed into a profession. Bigbusiness required capital markets that depended on accurate and useful information. This was supplied by what became an accounting profession. Today, a global real-time integrated information system is a reality, suggesting new accounting paradigms. Understanding history is needed to develop the linkages to predict this future.
Accounting has been around since the very first fiscal system emerged. Asagricultural trade grew in importance, it was not long before early businesspeople began to develop and use the calculative system of accounting. The modern-day practice of accounting is certainly far more sophisticated than its ancient ancestor, but its foundation and motives have remained the same. The sole purpose of accounting is to accurately calculate and keep records of monetary...