Accounting is a discipline of collecting, summarizing, analyzing and reporting the monetary terms, information about business. It is the language of business in the form of financial statements. Such language should be communicated and understood by the concerned parties of the business. Accounting is built on by few basic concepts and principles. It follows certain fundamental rules, principles and assumptions. Such principles and assumption must be followed by the accountants which are called as universally accepted or Generally Accepted Accounting Principles (GAAP). GAAP may be defined as those rules of action which are derived from experience and practice and when they prove useful, they become accepted as principles of accounting. Generally Accepted Accounting Principles requires the following criteria.
- Must be meaningful and useful.
- Should be reliable and trust worthy.
- Should be implemented without much complexity or cost.