GAAP

Definition:
Generally Accepted Accounting Principles. A widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board.

Explanation:
GAAP - Generally Accepted Accounting Principles - are a collection of guidelines and practices used by the accounting community. GAAP standards are set by the Financial Accounting Standards Board (FASB). FASB continually updates GAAP as new accounting issues and concerns arise. GAAP, 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. Generally GAAP includes local applicable Accounting Framework, related accounting law, rules and Accounting Standard.

Financial Statements Meanings:

Financial statement is a collection of data organized according to logical and consistent accounting procedures. In other words, financial statements are the outcome of summarizing process of accounting

Definition:
A written report which quantitatively describes the financial position of a company. This includes an income statement and a balance sheet, and often also includes a cash flow statement.

OR
A financial statement is a tool for viewing the financial condition of an individual, or a business, at the end of financial period.

Types of Financial statements:

Balance Sheet Income statement Statement of retained earnings Statement of cash flow or Cash flow statement

Balance sheet:
The balance sheet provides an insight into the financial status of a company at a particular time. The balance sheet, type of financial statement is different in comparison to the other types of financial statements. Other financial statements are prepared by taking into account the financial health of the company over a considerable span of time.

Income statements:
Also known as the P&L statement or the Profit And Loss Statement. This statement, ascertains the profit and loss of any business. This can be again of two types:

Single Step Income Statement Multi Step Income Statement

Statements Of Retained earnings:

This financial statement denotes alterations in the title rights of equities, in any business.

Cash flow statement:

This statement highlights flow of cash over a period of time. The cash flow may be from investment activities, operations or financing activities.

Use And Importance Of Financial Statements:

As a basis for granting credit As guide to advise dividend action As informative for prospective investors To determine the legality of dividends As a guide to the value of investment already made

As basis for price or rate regulation As a basis for taxation As an aid to government supervision

Specialized Fields of Accounting

Accounting is the active process of managing financial activities. It provides a systematic approach that is generally accepted in business practices of asset, liability, expense and income record-keeping and verification. Accountants record to date all of the financial elements of an individual or company's financial obligations. Reported in a standardized format that is easy to track, accountants prepare their information to be used and interpreted by several entities, such as for taxation and mortgage lending.

Objectives of Accounting:
The following are the objectives of accounting: a. b. c. d. e. f. To record the business transactions in a systematic manner. To determine the gross profit and net profit earned by a firm during a specific period. To know the financial position of a firm at the close of the financial year by way of preparing the balance sheet To facilitate management control. To assess the taxable income and the sales tax liability. To provide requisite information to different parties, i.e., owners, creditors, employees, management, Government, investors, financial institutions, banks etc.

Various Functions of Accounting are:

a. Recording: Accounting records business transactions in terms of money. It is essentially concerned with ensuring that all business transactions of financial nature are properly recorded. Recording is done in journal, which is further subdivided into subsidiary books from the point of view of convenience.

b.

Classifying: Accounting also facilitates classification of all business transactions recorded in journal. Items of similar nature are classified under appropriate heads. The work of classification is done in a book called the ledger. Summarizing: Accounting summarizes the classified information. It is done in a manner, which is useful to the internal and external users. Internal users interested in these informations are the persons who manage the business. External users of information are the investors, creditors, tax authorities, labor unions, trade associations, shareholders, etc. Interpreting: It implies analyzing and interpreting the financial data
embodied in final accounts. Interpretation of the data helps the management, outsiders and shareholders in decision making.

c.

d.

Managing finances, in both the public and private sectors of society, is supported by the services of general accountancy. Accountants manage the record-keeping of the earnings and expenses of their customers. While all accountants are trained in the foundational aspects of accounting procedures, the field offers opportunities for accounting specialization