Accounting and Bookkeeping

Generally Accepted Accounting Principles

Updated: 
Jan 02, 2019

What is GAAP?

GAAP is an acronym for Generally Accepted Accounting Principles. These principles constitute preferred accounting treatment.

GAAP includes definitions of accounting concepts and principles, as well as industry-specific rules. The main purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization to another. 

Who sets GAAP?

Currently, the GAAP policies are set primarily by three entities:

  1. Financial Accounting Standards Board (FASB)
  2. American Institute of Certified Public Accounts (AICPA)
  3. Securities and Exchange Commission (SEC) (for publicly held organizations, requires usage of GAAP)

The FASB pronouncements are contained in the Accounting Standards Codification, a centralized resources. 

What is the hierarchy of these pronouncements?

Under GAAP, the FASB pronouncements (SFAS's) are the top-level guidance and take precedence over the AICPA pronouncements.

Does GAAP apply to non-profit organizations?

Yes, the Accounting Standards Codification typically applies to both for-profit and non-profit organizations. There are certain pronouncements that apply only to non-profits and certain that do not apply to non-profits.