GAAP

(noun)

Generally Accepted Accounting Principles refer to the standard framework of guidelines, conventions, and rules accountants are expected to follow in recording, summarizing, and preparing financial statements in any given jurisdiction.

Related Terms

Examples of GAAP in the following topics:

  • Effects of GAAP on the Income Statement

    • GAAP's assumptions, principles, and constraints can affect income statements through temporary (timing) and permanent differences.
    • These differences are due to the recording requirements of GAAP for financial accounting (usually following the matching principle and allowing for accruals of revenue and expenses) and the requirements of the IRS's tax regulations for tax accounting (which are more oriented to cash).
    • Also, there are events, usually one time, which create "permanent differences," such as GAAP, which recognizes as an expense an item that the IRS will not allow to be deducted.
    • To achieve basic objectives and implement fundamental qualities, GAAP has four basic principles:
    • GAAP reporting also suggests that income statements should present financial figures that are objective, material, consistent, and conservative.

  • Cash Flow from Operations

    • The indirect method must be disclosed in the cash flow statement to comply with U.S. accounting standards, or GAAP.
    • One major difference between GAAP and IFRS is how interest paid is categorized.
    • Under GAAP, a loan payment would have to be broken down into two parts: the payment on principal (financing) and the payment of interest (operating).
    • All of the major operating cash flows, however, are classified the same way under GAAP and IFRS.
    • Some transactions may be classified as different types of cash flows under GAAP and IFRS accounting standards.

  • Reporting of Financial Statement Analysis

    • The reporting of financial statement requires conformity to GAAP in the US and IFRS internationally.
    • In the US, companies must conform to GAAP, or generally accepted accounting principles.
    • The basic objectives of GAAP state that financial reporting should provide information that is:
    • There has been a recent push in the US to adopt IFRS to replace GAAP.
    • Financial statements in the US are required to conform to the principles set forth by GAAP.

  • The Statement of Equity

    • The statements are expected by generally accepted accounting principles (GAAP) and explain the owners' equity and retained earnings shown on the balance sheet, where: owners' equity = assets − liabilities.
    • GAAP whenever comparative balance sheets and income statements are presented .

  • Defining the Balance Sheet

    • Even if you do not utilize the services of a certified public accountant, you or your bookkeeper can adopt certain generally accepted accounting principles (GAAP) to develop financial statements.
    • The strength of GAAP is the reliability of company data from one accounting period to another and the ability to compare the financial statements of different companies.

  • Extraordinary Gains and Losses

    • No items may be presented in the income statement as extraordinary items under IFRS regulations, but are permissible under US GAAP.

  • Limitations of Financial Statements

    • However, the Generally Accepted Accounting Principles (GAAP), a set of guidelines and rules, are one means by which uniformity and comparability between financial statements is improved.

  • Components of the Statement of Cash Flows

    • General Accepted Accounting Principles (GAAP), non-cash activities may be disclosed in a footnote or within the cash flow statement itself.

  • Understanding Future Stock Value

    • Numbers are usually reported as a GAAP EPS number (which means it is computed using mutually agreed upon accounting rules) and a Pro Forma EPS figure (income is adjusted to exclude any one time items as well as some non-cash items like amortization of goodwill or stock option expenses).

  • Employee Stock Compensation

    • Employee stock options have to be expensed under US GAAP in the US.