Generally Accepted Accounting Principles (GAAP) involve a framework of accounting standards, principles, and procedures established to ensure consistency, reliability, and transparency in financial reporting. Developed and governed by authoritative organizations like the Financial Accounting Standards Board (FASB) in the US, GAAP provides accountants and organizations with guidelines for preparing financial statements. For instance, the concept of revenue recognition under GAAP specifies when revenue should be recorded in the books. Under GAAP, principles such as the matching principle, where expenses are recorded in the same period as revenues they help to generate, provide a systematic approach to bookkeeping.

The application of GAAP ensures that businesses present their financial information in a standard way, facilitating easy comparison and evaluation by investors, regulators, and other stakeholders. As an example, a company preparing its income statement in compliance with GAAP would disclose revenue according to the revenue recognition criteria, ensuring all stakeholders interpret the data consistently. GAAP principles also mandate disclosures related to specific areas such as inventory valuation, leases, taxation, and segment reporting.