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The business today is large in size and comple)!: in nature. There are various groups who are interested in the performance of the business such as shareholders, debenture holders, investors, employees and consumers, etc. Accounting, in this way, is required to report and present the facts of the business in such a way, which can meet the varied requirements of different groups. It is, therefore, necessary that the language and terminology of accounting may be standardised so that there may be uniformity in the presentation of accounts. The idea requires scientific study, analysis and presentation of Accounts.

Generally Accepted Accounting Principles (GAAP) are the set of rules and practices that are followed while recording transactions and preparing the financial statements, GAAP build sound theoretical foundation of Accounting.

According to American Institute of Certified Public Accountants (AI CPA). GAAP have substantial authoritative support and general acceptability. GAAP must be relevant (meaningful), objective (reliable) and feasible (implemented without much cost and complexity).

Accounting is the systematised body of knowledge having cause and effect relationship. The subject has certain established concepts, conventions, standard language and terminology to enable the interested parties in the subject to understand it in the same sense as the accountant wants to communicate. These rules are usually called Generally Accepted Accounting Principles (GAAP). Accounting assumptions, rule of recording and reporting business transactions are also known by terms like concepts principles, conventions, doctrines, tenets, axioms postulates, assumptions and modifying principles.

The Principles of Accounting are not static in nature. These are constantly influenced by changes in legal, social and economic environment as well as the needs of the users. The various terms for principles are inter-changeably used by different authors. Generally the term ‘Basic Accounting Concepts’ is used to refer all these terms.