What is GAAP?

GAAP stands for Generally Accepted Accounting Principles. It is a set of accounting standards, principles, and procedures used in the United States for financial reporting. These principles provide a framework for how financial statements should be prepared and presented to ensure consistency, comparability, and transparency.

• Applicability: GAAP is primarily used in the United States, and it is required for financial reporting by U.S. publicly traded companies. Private companies and non-profit organizations in the U.S. may also follow GAAP.
• Principles and Concepts: GAAP includes underlying principles and concepts, such as the matching principle, revenue recognition principle, and historical cost principle, that guide the preparation of financial statements.
• Consistency and Comparability: GAAP aims to provide consistency and comparability in financial reporting, allowing users to analyze and compare financial statements of different companies within the U.S.

IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles) are two different sets of accounting standards used globally. IFRS improves transparency, and consistency in financial reporting around the world making it simpler and easier for the investor to compare financial statements from different countries; whereas, GAAP are the rules and guidelines that companies follow to make their financial statements. GAAP makes sure that all companies report their financial info in the same way so that it’s easier to compare them.