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Accounting
Terms

GAAP

Definition

GAAP, or Generally Accepted Accounting Principles, is a set of U.S. guidelines that companies use to structure their financial statements. GAAP encompasses various aspects of accounting, including revenue recognition, balance sheet classification, and materiality.

Why it matters

GAAP sets some kind of foundation for transparent and reliable financial reporting. GAAP compliance means companies speak the same financial language, letting investors, creditors, and regulators understand and compare their performance without guesswork. This standardization means that everyone, from small investors to major banks, can make informed decisions based on clear, comparable financial information.

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