Accounting principles are guidelines or rules used to follow in preparation of financial statements, which for US, is Generally Accepted Accounting Principles (GAAP). Many of these principles have been formally established by standard-setting bodies such as the Financial Accounting Standards Board (FASB). Others have simply gained acceptance through widespread use. Adherence to GAAP provides a measure of consistency in preparation of financial statements.
Accounting can be described as an information system that provides essential information about the financial activities of a business entity to various individuals or groups for their use in making informed decisions. Accounting is primarily concerned with the design of the recordkeeping system, the preparation of summarized reports based on the recorded data, and interpretation of the reports.
Who are the Users of Accounting Information?
The users of accounting information can be quite varied, depending on the type of decision under consideration. Accounting information might be used for decisions which may involve investments, to impose income taxes, regulatory or managerial decisions. A properly designed accounting system can generate summarized reports, using recorded transaction data, to meet those needs for accounting information. Users can then use those reports to make informed business decisions. This broad range of potential users therefore brought about the evolution of Generally Accepted Accounting Principles (GAAP) when reporting financial data.