Sample answer:

The term GAAP – Generally Accepted Accounting Principles refers to the common principles, standards that companies resort to for compiling their financial statements.

These principles are commonly accepted methods of recording and reporting accounting information that have been accepted as authoritative standards. GAAP standards are imposed on companies to ensure that a minimum level of consistency is maintained in the financial statements.

It proves a great help for investors while analyzing financials of companies while making investments. The basic principles underlying GAAP accounting are:

- Principle of Consistency;
- Principle of Non-Compensation
- Principle of Regularity;
- Principle of Sincerity;
- Principle of the Permanence of Methods

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