(GAAP)

Definition

Generally Accepted Accounting Principles (GAAP) are a set of rules and standards used for financial reporting in the United States. They ensure consistency, reliability, 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. GAAP includes principles like revenue recognition, matching, and full disclosure.
3. Publicly traded companies in the U.S. are required to follow GAAP for their financial reporting.
4. GAAP aims to improve transparency and trust in financial markets.
5. Consistency is a fundamental principle of GAAP, ensuring that companies use the same methods from period to period.

Review Questions

• What organization establishes GAAP?
• Why is consistency important in GAAP?
• Name three key principles included in GAAP.

Related terms

IFRS:

International Financial Reporting Standards, used outside the U.S. for financial reporting.

FASB:

The Financial Accounting Standards Board, responsible for establishing and updating GAAP.

Revenue Recognition Principle:

A principle within GAAP that dictates how and when revenue should be recognized.