What Are Generally Accepted Accounting Principles?

Business & Management
#1

The Financial Accounting Rules Board (FASB) has developed a collection of accounting principles, standards, and procedures known as generally accepted accounting principles (GAAP) (FASB). When public firms in the United States produce their financial accounts, their accountants must adhere to GAAP. GAAP is a collection of authoritative rules (established by policy bodies) and widely recognized methods for recording and reporting financial data. The goal of GAAP is to increase the clarity, uniformity, and comparability of financial information communication.
Pro forma accounting is a non-GAAP financial reporting approach that may be contrasted with GAAP accounting. International Financial Reporting Standards are the international counterpart of GAAP in the United States. Over 120 nations, including those in the European Union, use the International Financial Reporting Standards .

#2

Generally accepted accounting principles, or GAAP for short, are the accounting rules used to prepare and standardize the reporting of financial statements, such as balance sheets, income statements and cashflow statements, for publicly traded companies and many private companies. GAAP based income is measured so that the information provided on financial statements is useful to those making economic decisions about a company, such as potential investors and creditors.

Basically, GAAP is concerned with:

  • the measurement of economic activity;

  • the time when such measurements are to be made and recorded;

  • the disclosures surrounding this activity; and

  • the preparation and presentation of summarized economic information in financial statements.