Course Outline
Join PRO

What are generally accepted accounting principles (GAAP)?

Author:
Harold Averkamp, CPA, MBA

Definition of Generally Accepted Accounting Principles

Generally accepted accounting principles (commonly referred to as GAAP or US GAAP) are the common accounting rules that must be followed when a U.S. company prepares financial statements that will be distributed to people outside of the company.

These common rules range from basic underlying principles and assumptions to the detailed rules established by the Financial Accounting Standards Board (FASB) for complex financial transactions. The FASB has organized the generally accepted accounting principles in its Accounting Standards Codification (ASC).

Why Generally Accepted Accounting Principles are Required?

Generally accepted accounting principles are required so a knowledgeable reader of financial statements is able to do the following:

  • Compare a company’s current financial statements to the earlier financial statements of the same company
  • Compare a company’s financial statements to those of other companies (especially within the same industry)
  • Understand how a company recognizes/reports revenues, expenses, assets, liabilities, etc.

Examples of the Basic Underlying Accounting Principles

The basic underlying accounting principles consist of the following:

Related to these underlying accounting principles are the following: objectivity, conservatism, materiality, cost/benefit, comparability, consistency, relevance, and timeliness.

Join PRO to Track Progress

Features

Free

PRO

Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Dictionary
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Flashcards
Crossword Puzzles
Word Scrambles with Coaching
Bookkeeping Study Guide
Managerial and Cost Accounting Study Guide
Certificates of Achievement
Bookkeeping Certificate of Excellence
Business Forms
Printable PDF Files
Progress Tracking
Motivational Badges and Points
Motivational Medal Rankings
Motivational Activity Streaks
Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 3,033 Testimonials

PRO for Teams
  • Easily onboard new users and team admins
  • Monitor individual user progress and grades
  • Monitor team progress and compare users
  • View average grades and find problem areas
  • Monitor recent activity and user achievements
PRO for Teams
Take the Tour Join Pro Upgrade to Pro