Generally accepted accounting principles (GAAP)

Definition

Generally Accepted Accounting Principles (GAAP) are standardized guidelines for financial accounting and reporting. They ensure consistency, transparency, and comparability of financial statements across different organizations.

5 Must Know Facts For Your Next Test

1. GAAP is established by the Financial Accounting Standards Board (FASB).
2. It includes principles like revenue recognition, matching, and full disclosure.
3. GAAP compliance is mandatory for publicly traded companies in the U.S.
4. The principles under GAAP help prevent financial misrepresentation and fraud.
5. GAAP differs from International Financial Reporting Standards (IFRS), which are used in many other countries.

Review Questions

• What organization is responsible for establishing GAAP?
• Name three key principles included in GAAP.
• Why is GAAP important for publicly traded companies?

Related terms

Financial Accounting:

Process of recording, summarizing, and reporting financial transactions over a period.

Managerial Accounting:

Focused on providing information to internal managers for decision-making purposes.

International Financial Reporting Standards (IFRS): A set of global accounting standards developed by the International Accounting Standards Board (IASB).