Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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Which statement accurately describes the purpose of GAAP?

To provide guidelines for non-profit organizations only.
To ensure consistency in financial statements across different companies.
To assist individuals in personal financial planning.
To set tax regulations for businesses.

The correct answer is: To ensure consistency in financial statements across different companies.

The purpose of Generally Accepted Accounting Principles (GAAP) is primarily to ensure consistency in financial statements across different companies. This consistency allows users of financial statements, such as investors, creditors, and regulators, to compare the financial performance and position of different entities accurately. By adhering to standardized guidelines, organizations present their financial information in a clear and comparable format, which enhances transparency and helps maintain trust in financial reporting. Different options focus on distinct aspects; for example, while non-profit organizations do apply certain guidelines, GAAP is not limited to them. Individual financial planning also falls outside the scope of GAAP, which is designed specifically for businesses. Furthermore, tax regulations are governed by tax laws and not by GAAP, which centers on financial reporting rather than taxation. Therefore, the emphasis on consistency among financial statements makes this answer the most accurate regarding the purpose of GAAP.