What does GAAP stand for in accounting?

Explain (a) Business entity concept (b) Money measurement concept.

GAAP stands for Generally Accepted Accounting Principles. These are the concepts, conventions and standards widely accepted and adopted by accountants while recording and reporting financial information. They serve as guidelines for accountants and ensure uniformity and comparability of financial statements.

(a) Business Entity Concept — Business is treated as a unit separate and distinct from its owner. A separate set of books is maintained for the firm, and transactions are recorded from the firm's point of view. The capital contributed by the owner is treated as a liability of the firm towards the owner; interest on capital is an expense of the business; and money or goods withdrawn by the proprietor are treated as drawings.

(b) Money Measurement Concept — Only those transactions are recorded in the books of accounts which can be expressed in terms of money. An event, howsoever important, will not be recorded unless its monetary effect can be measured with a fair degree of accuracy. For example, the retirement of the chairman of a company cannot be recorded as such. Money is a common denominator that allows diverse items (machinery, land, raw materials, etc.) to be added together. The concept makes accounting records homogeneous, relevant, simple and understandable. Its limitation is that it assumes stability in the value of money, which is not true in reality due to changing prices.