Generally Accepted Accounting Principles - GAAP

AAA

DEFINITION of 'Generally Accepted Accounting Principles - GAAP'

The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information.

INVESTOPEDIA EXPLAINS 'Generally Accepted Accounting Principles - GAAP'

GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data via financial statements. If a financial statement is not prepared using GAAP principles, be very wary!

That said, keep in mind that GAAP is only a set of standards. There is plenty of room within GAAP for unscrupulous accountants to distort figures. So, even when a company uses GAAP, you still need to scrutinize its financial statements.

What to know more about GAAP? Please read: The Impact Of Combining The U.S. GAAP and IFRS

VIDEO

RELATED TERMS
  1. Hierarchy Of GAAP

    An outline for determining the most appropriate sources for obtaining ...
  2. Accountant International Study ...

    An organization that studied the differences in accounting practices ...
  3. Regulatory Accounting Principles ...

    A comprehensive set of rules and regulations for accounting that ...
  4. Chartered Accountant - CA

    An accounting designation given to accounting professionals in ...
  5. Generally Accepted Auditing Standards ...

    A set of systematic guidelines used by auditors when conducting ...
  6. Certified Public Accountant - CPA

    A designation given by the American Institute of Certified Public ...
Related Articles
  1. Fundamental Analysis

    What is the difference between cash flow and EBIDTA?

    Understand the difference between cash flow and EBITDA, and find out why cash flow is a more comprehensive metric for evaluating a company's financial health.
  2. Fundamental Analysis

    What kind of financial reporting requirements does GAAP set out?

    Look at some of the major financial reporting requirements set forth by the generally accepted accounting principles and the required financial statements.
  3. Fundamental Analysis

    What is the difference between book value and carrying value

    Dig deeper into the definitions of carrying value and book value, and learn to differentiate between their various financial applications.
  4. Investing Basics

    When are expenses and revenues counted in accrual accounting?

    Take an in-depth look at the treatment of revenues and expenses within the accrual method of accounting and learn why many consider it superior to cash accounting.
  5. Personal Finance

    What is a P&L statement used for?

    Discover how the profit and loss statement is used by investors, accountants and business managers to assess the health and business practices of a company.
  6. Fundamental Analysis

    What's the difference between free cash flow and operating cash flow?

    Learn the difference between free cash flow and operating cash flow. Explore how analysts use earnings and cash flow when evaluating a company's performance.
  7. Fundamental Analysis

    How should a change in accounting principle be recorded and reported?

    Learn about changes in accounting principle and why businesses make them, as well as the reporting and recording requirements that accompany these changes.
  8. Investing

    What are the differences between income statements from merchandising companies vs. service companies?

    Learn how merchandising companies and service companies have to account for different information when preparing an income statement.
  9. Investing Basics

    What is the accounting treatment for discontinued operations in IFRS and U.S. GAAP?

    Find out what accountants define as "discontinued operations" under US GAAP and IFRS and the differences that exist between the two systems.
  10. Fundamental Analysis

    What are the difference between gross revenue reporting and net revenue reporting?

    Understand what it means to report revenue as net or gross and which kinds of companies are most likely to use either reporting method.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center