GAAP is a short form for Generally Accepted Accounting Principles. These are rules, standards, and procedures set by the Financial Accounting Standard Board (FASB) of the United States. Every public organization based in the U.S is bound to follow these pre-set procedures for reporting their financial statements.

When it comes to countries other than the United States, they follow the accounting principles and procedures issued by International Financial Reporting Standards (IFRS) governed by International Accounting Standard Board (IASB). These are two different accounting boards and are in collaboration to make one uniform accounting standard procedure.

The purpose of GAAP is to design consistent rules and procedures for all public limited companies to follow that will assist all stakeholders to read and compare the financial data of different organizations to make better financial decisions.

10 Generally Accepted Accounting Principles (GAAP)

• Going On Concern Principle: It is the principle of continuity, which says that business life is not limited to a specific time period rather it is intended to continue for a long-life
• Cost Principle: It states that the cost of a business asset should be recorded at the historic cost price of that asset for financial reporting.
• Principle of Conservatism: According to this accounting principle, accountants are recorded every possible expense or loss immediately, while potential gains are recorded only when they are realized.
• Materiality Principle: This principle is all about the materiality of any accounting information. When it is insignificant or immaterial, it should be omitted or rounded to the nearest figure. 
• Principle of Consistency: This principle of accounting states that there should be consistency in the use of any accounting principle for all future accounting periods.
• Matching Principle: Matching principle states that revenues and expenses should be matched in the same accounting period.
• Revenue Recognition Principle: Accrual basis of accounting is based on this principle, which states that revenue should be recorded when it is earned whether it is actually received or not.
• Accrual Basis Accounting Principle: According to this principle, revenues are recorded when realized and expenses are recorded when they are incurred regardless of their actual receipt and payments.
• Full Disclosure Principle: This principle urges that every material and significant accounting information of a business should be disclosed clearly. 
• Separate Entity Principle: This accounting principle states that every business entity has a separate legal entity, it should be considered a separate legal person apart from the owner.