GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

PRESENTED BY:
POOJA BADIYANI

Generally Accepted Accounting Principles (GAAP) are the set of rules and practices that

are followed while recording transactions and preparing the financial statement ,GAAP build sound theoretical foundation of Accounting. According to American Institute of Certified Public Accountants (AICPA) GAAP have substantial authoritative support and general acceptability. GAAP must be relevant, objective and feasible.

Accounting is the systamatised 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 accountants wants to communicate. These rules are usually called Generally Accepted Accounting 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 contained within the statements complies with GAAP.
Principle of regularity: Regularity can be defined as

conformity to enforced rules and laws.

Principle of consistency: This principle states that when a business has once fixed a method for the accounting treatment of an item, it will enter all similar items that follow in exactly the same way.
Principle of sincerity: According to this principle, the

accounting unit should reflect in good faith the reality of the company's financial status.

 Principle of the permanence of methods: This principle

aims at allowing the coherence and comparison of the financial information published by the company.
Principle of non-compensation: One should show the full

details of the financial information and not seek to compensate a debt with an asset, a revenue with an expense, etc. (see convention of conservatism)
Principle of prudence: This principle aims at showing the

reality "as is": one should not try to make things look prettier than they are. Typically, a revenue should be recorded only when it is certain and a provision should be entered for an expense which is probable.

 Principle of continuity: When stating financial

information, one should assume that the business will not be interrupted. This principle mitigates the principle of prudence: assets do not have to be accounted at their disposable value, but it is accepted that they are at their historical value (see depreciation and going concern). Principle of periodicity: Each accounting entry should be allocated to a given period, and split accordingly if it covers several periods. If a client pre-pays a subscription (or lease, etc.), the given revenue should be split to the entire time-span and not counted for entirely on the date of the transaction. Principle of Full Disclosure/Materiality: All information and values pertaining to the financial position of a business must be disclosed in the records. Principle of Utmost Good Faith: All the information regarding to the firm should be disclosed to the insurer before the insurance policy is taken.

INDIAN GAAP
Indian Gaap is a set of accounting standards that every

company operating in India has to follow when reporting its financial results. Generally Acceptable Accounting Standards differ for each country as they incorporate policies and procedures that have to be followed for financial disclosures as per the standards set in each country! ICAI is the body in India that has set the Accounting standards(Indian Accounting Standards) that need to be followed while financial reporting, all CAs, its members, are an integral part of the corporate in India have the responsibility to report and furnish the financial results as per the set standards.

US GAAP
In the U.S., generally accepted accounting

principles, commonly abbreviated as US GAAP or simply 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.

INDIAN GAAP V/S US GAAP 1.FINANCIAL

STATEMENTS

Prepared in accordance with the presentation requirements of Schedule VI to the companies Act , 1956.

Not required to be prepared under any specific format as long as they comply With the disclosure requirements of US Accounting Standards.

2.EARNINGS PER SHARE (EPS) DATA No disclosures requirements except those under Schedule VI ,Part IV to the companies act ,1956 .

Disclosure is mandatory. This includes the EPS calculated using the weighted average shares.

FORMAT OF CASH FLOW STATEMENT

Particulars

Amt

Amt

Net profit before tax and Non-operating items Add: Depreciation Profit before Working capital changes Add: Increase in Cash(Increase in Current Liabilities And Decrease in Current Assets, except cash) Less: Decrease in cash(Increase in Current Assets) And Decrease in Current Liabilities, except cash) Less: Tax paid Cash from Trading Operations

Xxxx Xxxx Xxxx Xxxx xxxx

xxxxx xxxxx

FORMAT OF PROFIT AND LOSS ACCOUNT To Opening stock Xxxx

xxxx

To Purchases Less: Purchases returns To Wages Add: Outstanding To Freight charges To Water,Power,gas To Carriage inwards To Manufacturing expenses To Coal,gas,water,power,fuel To Other direct expenses To Gross profit c/d To gross loss b/d To salaries To rent,rates and taxes To insurance To commission paid To printing and stationary To postage,telegram,telegraph To carriage outwards To travelling expenses To advertisements To repair expenses To directors fees To audit fees To debenture interest To preliminary expenses written off To Miscellaneous expenses To Bad Debts Add: New R.D.D Less: Old R.D.D To Depreciation To Discount on issue of shares and Debentures written off To Goodwill written off To Loss on sale of assets To Provision for Taxation To Net Profit

xxxx xxxx xxxx

Xxxx Xxxx Xxxx Xxxx Xxxx

xxxx

Xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxxx xxxxx Xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx XxxX Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx Xxxx xxxx
xxxxx

By Sales less: Sales returns By Closing stock By Gross loss c/d By Gross Profit b/d By Rent Received By Commission Received By Interest received By Discount received By Miscellaneous expenses By Transfer fees By Income from investments By Profit on sale of assets By Net Loss

Xxxx xxx

Xxxx xxxxx Xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx

xxxxx

xxxxx

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I)Share capital Authorised capital Issued capital Subscribed capital Less:Calls-in arrears Add: Forfeited shares Paid up capital II) Reserves and Surplus a)General reserve b)Capital reserves c)Sinking fund III)Secured loans a)Debentures b) Loans and advances from subsidiaries c)other loans IV)Unsecured Loans 1.Fixed deposits accepted 2.Loans and Advances from Subsidiaries 3.Short-term loans and advances i) From banks ii)From others 4.Other loans and advances a)From banks b)From others V)Current liabilities and Provisions a)Sundry Creditors b)Bills Payable c)Bank Overdraft d)Unpaid Dividend e)Advances and loans from subsidiary companies f)Outstanding wages g)Outstanding salaries Provisions a)Provision for taxation b)Proposed dividend c)For Provident fund scheme d)other provisions

xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxxx Xxxxx Xxxx Xxxx Xxxx Xxxx xxxxx

I)Fixed Assets a)Plant and Machinery b)Land and Building c)Furniture and Fixtures d)Goodwill e)Patents, Trademarks II)Investments a)In government securities b)Investments in shares, debentures etc III)Current assets, loans and Advances 1)Current Assets a) Interest accrued on Investments b)Stock c)Loose tools d)Stores and spare parts e)Sundry Debtors f)Cash-in-hand g)Cash-@-bank h)Closing stock i)Bills Payable 2)Loans and Advances a)Advances and loans to subsidiaries b)Prepaid expenses IV)Miscellaneous expenses a)Preliminary expenses b)Discount allowed on the issue of shares and debentures

xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx Xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx Xxxxx Xxxx Xxxx Xxxx

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3.FIXED ASSETS & DEPRICIATION Revaluation of assets permitted. Depreciation is based (usually) on rates set out in Schedule XIV to the Companies Act, 1956.

Revaluation of assets not permitted. Depreciation is over the useful economic lives of assets. Depreciation & profit/loss on sale is based on historical cost.

4.INVESTMENT IN OWN SHARES

Expressly prohibited.

Permitted, & is shown as a reduction from shareholders equity

5.R & D COSTS Costs can be capitalized subject to the conditions of AS.

Costs are expenses as incurred.

6.RELATED PARTY TRANSACTIONS

No specific disclosures required. Auditors have a duty to report certain transactions entered into by related parties as defined under the Companies Act, 1956. Disclosures are stringent and require descriptions of nature of relationships and control, transactions, amounts involved and amounts due.

7.GOODWILL No standard except for brief references in AS-10, Fixed Assets, and AS-14, Accounting For Amalgamation. Goodwill arising from amalgamation can be written off over five years. 8.PRE-OPERATIVE EXPENCES Allowed to be deferred and written off over a period of 3-5 years or 10 years. Treated as any other intangible asset, and is capitalized and amortized. The maximum carry forward period is 40 years.

Concept does not exist.

9.ASSETS & LIABILITIES No mandatory disclosure of current and long-term components EXCEPT AS FIXED ASSETS AND CURRENT ASSETS-SECURED,UNSECURED LOANS AND CURRENT LIABILITIES. 10.FOREIGN EXCHANGE TRANSACTIONS Exchange fluctuations on liabilities incurred for fixed assets. Mandatory disclosures about current and long-term components separately. Current component normally refers to one year of the period of operating cycle.

Exchange fluctuations on liabilities incurred for fixed assets does not exit.

11.SEGMENTAL REPORTING Now introduced otherwise earlier Requirement exists for disclosure of quantitative particulars only as prescribed in Schedule VI to the Companies Act , 1956. 12.IMPAIRMENT EVALUATION : Mandatory for SECregistered companies to report revenues and net income by geographic regions and products/business lines.

Now introduced, earlier no standards.

Mandatory for all assets.

13.FAIR VALUE DISCLOSURES

Directors to state expressly if, in their opinion, the current assets are not expected to realized their cost if they are sold.

Mandatory fair values are ascertained based on certain specific principles for items, such as loans, current assets, current liabilities, loans etc.

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