Generally Accepted Accounting Principles (GAAP)

Every country in the world that has an organized stock exchange has what are called generally accepted accounting principles (GAAP). These are rules or guidelines that accountants and book­keepers are required to follow for the recording of transactions. To be listed on the stock exchange, all publicly traded companies are required to follow these rules. Smaller companies are generally required to use them for income tax purposes (though there can be some differences between accounting principles for financial statements and tax returns). You can think of GAAP as the right way to do things. It is also, for some companies, the legal way to do things.

In the United States, the independent body that governs these standards is the Financial Accounting Standards Board; in Canada, it's the Canadian Accounting Standards Board; in England, the Accounting Standards Board UK; and in Australia, the Australian Accounting Standards Board.

How do you know if you are recording your transactions in accordance with GAAP? Information like this one can be a valuable resource. You can also discuss your record keeping system with your accountant, whose job it is to keep on top of GAAP and any changes that occur within it.