What Does Generally Accepted Accounting Principles (GAAP) Mean?
The overriding accounting principles, standards, and procedures that companies follow when compiling their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. Investopedia explains Generally Accepted Accounting Principles (GAAP) Companies use GAAP to standardize their financial statements so that investors can better use those statements to analyze a company for investment purposes. GAAP covers things such as revenue recognition, balance sheet item classification, and outstanding share measurements. Companies are expected to follow GAAP rules when reporting their financial data in their financial statements. If a financial statement is not prepared using GAAP principles, investors should be very wary! That said, GAAP is only a set of guidelines, and that leaves plenty of room for interpretation by unscrupulous accountants to distort figures. Thus, even with GAAP,
