GAAP
Generally Accepted Accounting Principles — the standardized set of rules for financial reporting used by U.S. public companies.
What is GAAP?
GAAP (Generally Accepted Accounting Principles) is the standardized framework of accounting rules, standards, and procedures that U.S. companies must follow when preparing financial statements. GAAP is primarily established by the Financial Accounting Standards Board (FASB) and enforced by the Securities and Exchange Commission (SEC) for public companies. Key GAAP principles include the accrual principle (revenue and expenses are recognized when earned/incurred, not when cash changes hands), the matching principle (expenses are matched to the revenue they generate), and the consistency principle (same accounting methods applied across periods). Most other major economies use IFRS (International Financial Reporting Standards), which differs from GAAP in several areas.
Example
Many technology companies report both GAAP and non-GAAP financial results. For fiscal year 2024, Meta Platforms reported GAAP net income of $62.4 billion; however, its non-GAAP net income was higher because it excluded stock-based compensation expense — a significant cost that GAAP requires to be recognized on the income statement.