[GAAP](https://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)), short for Generally Accepted Accounting Principles, is the body of authoritative standards and common practices that governs how a business records and reports financial information so its statements are clear, consistent, and comparable.
In the United States, GAAP is set by the Financial Accounting Standards Board (FASB), whose standards have been organized since 2009 in the Accounting Standards Codification. The Securities and Exchange Commission requires public companies to report under GAAP; private companies often follow it because lenders, investors, and auditors expect it. Most other countries use International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board, which covers much of the same ground with different rules in areas such as inventory and revenue.
GAAP rests on 📝Accrual Accounting: revenue is recognized when it is earned and expenses are matched to the period they support, rather than when cash moves. The balance sheet accounts that carry those timing differences, such as deferred revenue, prepaid assets, and accrued liabilities, are where a company's books most often depart from GAAP.
After building a company's first 📝Integrated Financial Model (IFM), I evaluate how close the business is to GAAP. Most of that is done by evaluating the balance sheet and the transactions that make up its balances.