GAAP
Definition
Generally Accepted Accounting Principles, the accounting framework used for US financial reporting and maintained by the Financial Accounting Standards Board. More rules-based than IFRS, and required for SEC registrants.
Related Terms in Accounting Principles
IFRS
International Financial Reporting Standards, issued by the International Accounting Standards Board and used or permitted in well over a hundred jurisdictions. More principles-based than US GAAP, with differences in areas such as inventory costing and development costs.
Cash Basis Accounting
Recording revenue when cash is received and expenses when cash is paid. Simple and a close proxy for cash position, but it ignores receivables, payables and inventory, so it can misstate profitability in any period. Eligibility is restricted by size and entity type in most tax systems.
Modified Cash Basis
A hybrid that keeps cash-basis treatment for most items while applying accrual treatment to selected ones, typically capitalising and depreciating fixed assets and recording long-term debt. Used for internal reporting; not a recognised framework for audited statements.
Accruals
The principle that transactions are recorded when they occur economically rather than when cash moves, and the entries that implement it. Accrual accounting is required under both GAAP and IFRS for general-purpose financial statements.
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