What is the definition of Generally Accepted Accounting Principles (GAAP)?

Generally Accepted Accounting Principles or GAAP is an accounting term that refers to the set of standard guidelines that financial accounting will follow no matter where the jurisdiction or location. These are internationally accepted standards used when doing accounting for the company. It involves conventions and rules as to how transactions are to be recorded or summarizes, and how financial statements are prepared.

GAAP is set to ensure that accounting is reported objectively and without inconsistency and bias. This is what the auditor will check for when reviewing the accounting of a company.

GAAP involves the principles of non-compensation (where full details of the expenses and income are listed and nothing is used to compensate for another account), regularity (where rules are followed), sincerity (good faith should be practiced) and consistency (the same procedures and methods should be applied throughout). GAAP also adheres to the principle of the permanence of methods, as well as the principle of full disclosure, prudence and continuity.

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