GAAP comprises several key principles that guide the accounting practices of businesses:
Principle of Regularity: Businesses must adhere to established rules and regulations. Principle of Consistency: Companies should apply the same accounting methods and procedures from period to period. Principle of Sincerity: Accountants should strive for accuracy and honesty in their financial reporting. Principle of Permanence of Methods: Consistent procedures should be used in the preparation of financial statements to guarantee comparability. Principle of Non-Compensation: Both positives and negatives should be fully reported without any expectation of offsetting each other. Principle of Prudence: Financial reporting should be based on factual information and not speculation. Principle of Continuity: Financial statements should be prepared with the assumption that the business will continue to operate indefinitely. Principle of Periodicity: Financial records should be maintained for specific periods, such as quarterly or annually. Principle of Materiality: All significant financial information should be disclosed in financial reports. Principle of Utmost Good Faith: Parties involved in financial transactions should act with honesty and fairness.