Nature and Purpose of GAAP

Previously we discussed about “What Does GAAP Stand For”? Now we are in a position to understand the nature and purpose of GAAP.

ü Nature of General Accepted Accounting Principles

The nature of General Accepted Accounting Principles is to ensure that the fundamental rules and accounting principles should be followed by the company businesses throughout the accounting period while preparing their financial statements. General Accepted Accounting Principles sets the standards for financial reporting of the company businesses. Accounting Principles that include Accounting Concepts and Accounting Conventions are used while preparing the Financial Statements.

ü Purpose of General Accepted Accounting Principles

The purpose of GAAP is to provide true and fair view of financial statements to the Users of Financial Statements. For this purpose, the information provided in these Financial Statements should be reliable and accurate.