Finance & Accounting
Definition
GAAP (Generally Accepted Accounting Principles) is the standard framework of accounting rules used for financial reporting in the United States. Publicly traded companies are required to report under GAAP; many private companies must as well when seeking investment, bank financing, or preparing for acquisition.
GAAP is established and maintained by the Financial Accounting Standards Board (FASB) and encompasses core principles: revenue recognition (record when earned), the matching principle (match expenses to the period they generate revenue), full disclosure (disclose material information), and the going concern assumption (assume continued operation). GAAP-compliant financial statements include the balance sheet, income statement, statement of cash flows, and statement of changes in equity. GAAP differs from IFRS (used in most other countries) — particularly in areas like inventory accounting, revenue recognition details, and lease accounting. Private companies are not legally required to follow GAAP but must do so when seeking institutional investment, bank financing above certain thresholds, or being acquired by a public company requiring audited GAAP financials.
Many small businesses maintain tax-basis books that differ from GAAP and are surprised by conversion requirements during fundraising or M&A due diligence. An accountant can assess the gap between your current financials and GAAP compliance and manage the transition before it becomes a deal blocker.