Financial Accounting I

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Generally accepted accounting principles (GAAP)

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Financial Accounting I

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

  • Who establishes GAAP in the United States?
  • Name three key principles included in GAAP.
  • Why is GAAP compliance mandatory for publicly traded companies?
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