key term - Generally accepted accounting principles (GAAP)

Definition

Generally Accepted Accounting Principles (GAAP) are a set of rules and standards used by accountants to prepare, present, and report financial statements. GAAP ensures consistency, reliability, and comparability of financial information across different organizations.

5 Must Know Facts For Your Next Test

1. GAAP is established by the Financial Accounting Standards Board (FASB) in the United States.
2. It includes principles like revenue recognition, matching principle, and full disclosure.
3. GAAP compliance is mandatory for publicly traded companies in the U.S.
4. Financial statements prepared under GAAP include the balance sheet, income statement, and statement of cash flows.
5. GAAP promotes transparency and helps investors make informed decisions.

Review Questions

Related terms

FASB:

The Financial Accounting Standards Board is responsible for establishing and improving GAAP.

Revenue Recognition Principle:

This principle states that revenue should be recognized when it is earned and realizable.

Statement of Cash Flows:

A financial statement that shows how changes in balance sheet accounts affect cash and cash equivalents.