GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Back to GlossaryDefinition
A set of accounting principles set forth by the FASB that U.S. companies must follow when putting together financial statements.
Summary
Generally Accepted Accounting Principles (GAAP) are the standardized rules, procedures, and guidelines that companies in the United States must follow when preparing their financial statements. Think of GAAP as the 'rulebook' for accounting - it ensures that all companies report their financial information in a consistent, comparable way so that investors, creditors, and other stakeholders can make informed decisions. GAAP covers everything from how to recognize revenue to how to value assets and report expenses.
Usage Context
Understanding GAAP is crucial throughout the course as it forms the foundation for all financial reporting topics, including preparing financial statements, analyzing company performance, and understanding how businesses communicate their financial position to external users.
Common Confusions
- Thinking GAAP is the same worldwide (it's primarily US-based)
- Confusing GAAP with tax accounting rules (they're different)
- Believing GAAP never changes (it's regularly updated)
- Assuming all businesses must follow GAAP (mainly public companies)
- Mixing up GAAP with internal management accounting practices
