What is GAAP?(Generally Accepted Accounting Principles) Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

radio we are going to learn the
generally generally accepted accounting
principles or GAAP and from now on in
this video I will mention the generally
accepted accounting principles as GAAP
so before knowing what are generally
accepted accounting principles
let us first know what our accounting
principles itself so we all know that
accounting is the language of the
business language of the business which
a business uses to communicate with
outsiders what does it communicate with
the outsiders it communicates about the
results that is the financial results
and the state of affairs state of
affairs and as for any other language
this language of accounting is also
guided by a framework and that framework
is nothing but the accounting principles
so accounting principles accounting
principles principles are a set of
concepts and conventions which guide the
accounting principles are a set of set
of concepts and conventions which guide
the process of accounting guide the
process of accounting forward to achieve
its objectives to achieve its objectives
so accounting principles are nothing but
a set of concepts and conventions which
guide the process of accounting to
achieve its objectives so what is the
main objective of accountancy or
accounting the main objective of
accounting is to come
get the results of the financial
transactions to the owners and other
interested parties of the business so
now we know what accounting principles
are now we know what accounting
principles are
let us see what gap is so let me write
it down gap as the name suggests is
nothing but accounting principles
generally accepted worldwide accounting
principles GAAP is accounting principles
which are generally accepted worldwide
generally accepted in different
countries generally accepted by the
accounting bodies financial bodies and
institutions all over the world
generally accepted let me write world
wide so why do we need GAAP what is
actually the reason behind
implementation of GAAP why GAAP the
answer to this question is very simple
and lies in the points which I am going
to discuss below the first thing is
globalization and or say liberalisation
of economy liberalisation of economy so
now in the present day scenario the
world the the world economy is seeing a
stage of globalization and
liberalisation where businesses are not
restricted to geographical borders so
there are cross country businesses
international forms and
thus the need of accounting information
is also not restricted to the
geographical limits of a particular
country so a company operating in India
may need to communicate its financial
results to some person who is sitting in
Brazil or say let me take an example of
an investor say there is an investor
this person is an investor and he is
sitting in USA and there is a company in
India this is a company in India this is
India and this is a company and there is
a company in India and this person wants
to invest in this company by buying the
shares of this company so he wants to
invest once in first in this company by
buying the shares of this company so
what he will how will he decide that
whether this company is a good
investment target or not so for that
decision this investor will depend upon
the accounting information or the
accounting results of this company
so the accounting information of this
company will flow to this user so that
he can make that investment decision the
accounting information will flow but let
us assume that the accounting principles
in India and the accounting principles
that are in practice in USA are
completely different such that the
accounting principles followed in India
are not at all followed in USA as
totally different set of practice is
prevalent in USA so in that case will
this investor be able to interpret this
accounting information for his benefit
will actually this accounting
information serve the purpose of this
investor he will not be able to decode
this accounting information because he
is not aware of the accounting
which are followed in India are the
principles which this company used to
produce this accounting information he
is only aware of the accounting
principles and policies that are
followed in USA so thus there is a need
of uniformity thus there is a need of
uniformity of accounting principles thus
there is a need of uniformity of
accounting principles so that the data
produced by the accounting system can be
used worldwide
if the accounting principles followed by
every country is more or less similar or
uniform then people of any country can
use or interpret the financial data
produced by any other country in the
practical scenario however 100 percent
uniformity has not been achieved 100
percent uniformity has not been achieved
but still since there is an
implementation of generally accepted
accounting principles since there is an
implementation of GAAP to an extent the
very basic accounting principles all
over the world are the same that is why
it is possible for people all across the
globe to interpret and understand the
accounting information which was
compiled in a different country and in
this era of globalization where is where
there are always cross-border
investments and other transactions are
happening and businesses are expanding
their boundaries outside their home
countries this kind of uniformity of
accounting principles is of very much
importance otherwise more often than not
every moment a wrong decision will be
taken and money will be lost so now when
we know what GAAP is and why
we need it let us go back to the
accounting principles so let me write it
down once more over here and I will use
a different color now accounting
principles as I said earlier are a set
of a set of concepts and conventions
accounting principles are a set of
accounting concepts and conventions now
what is a concept by the word concept we
mean a mental idea a general idea about
something so there are some basic
concepts which an accountant has to
understand before preparing an accounts
and conventions let me write down the
tagline for the concepts was concepts
are nothing but a basic idea about
something and conventions are a set of
rules conventions are a set of rules and
practices set of rules and practices
which actually govern the solving of a
particular class of problems conventions
are actually a set of rules and
practices which govern the solving
process of a particular class of
problems so these concepts and
conventions together make the accounting
principles and in the field of concepts
we have under the concepts we have
different concepts like say I will list
a few say we have four entity concept
and I will
to discuss all these concepts each one
of them in a separate video then we have
going concern concept then we have money
measurement concept and we have
periodicity concept periodicity concept
and etc we have others which we will
discuss in future videos and for
conventions and for conventions we have
for conventions we have convention of
disclosure then we have convention of
materiality materiality I wrote the
spelling wrong
we have materiality then we have cons
convention of conservatism conservatism
conservatism and finally we have
convention of consistency consistency so
we will discuss all of them in separate
videos each of the concepts and each of
the conventions so stay tuned and stay
subscribe for future videos thank you
for watching