Legal Definitions - generally accepted accounting principles

Definition: Generally Accepted Accounting Principles (GAAP) are the conventions, rules, and procedures that define approved accounting practices at a particular time. These principles are issued by the Financial Accounting Standards Board (FASB) for use by accountants in preparing financial statements. They include broad guidelines of general application as well as detailed practices and procedures.

Example: One example of GAAP is the principle of consistency, which requires that a company use the same accounting methods and procedures from one period to the next. This ensures that financial statements are comparable over time and that changes in financial performance are due to actual changes in the business rather than changes in accounting methods.

Explanation: The principle of consistency helps to ensure that financial statements are reliable and accurate. By using the same accounting methods and procedures from one period to the next, a company can provide a clear picture of its financial performance over time. This allows investors, creditors, and other stakeholders to make informed decisions about the company's future prospects.