GAAP (Generally Accepted Accounting Principles)

Financial Accounting Advanced

GAAP refers to a set of standardized accounting rules and guidelines used in the U.S. to prepare financial statements.

Explanation:
GAAP ensures consistency, transparency, and comparability in financial reporting. Key principles include:

Matching principle
Historical cost
Full disclosure
GAAP is enforced by the Financial Accounting Standards Board (FASB).

Example:
Under GAAP, companies must recognize revenue when it is earned, not necessarily when payment is received.

Importance:
Following GAAP is essential for public companies and helps investors make informed decisions.

Common Confusion:
GAAP is specific to the U.S.; other countries follow IFRS.