Generally Accepted Accounting Principles (GAAP) is established on set of accounting principles. Companies have to follow the rules and regulations set up by GAAP. These guidelines comprise financial statements, revenue recognition and recording business transactions which are largely applicable to fellow U.S. citizens.

Most of the companies use accounting principles to keep transparency in their financial statements. GAAP also come handy to evaluate the authenticity of figures submitted by these companies. It is not easy to determine whether a company was profitable or not if every one follow their own system of accounting.

If GAAP are not the principles used for set up fiscal reports, then a company needs to make clear which other type of accounting they are used in its fiscal reports that could deceive the person probing it.

GAAP are the ideal principles for preparing financial statement. Not revealing that it has used principles excluding GAAP makes a company legally liable for any deceiving or misunderstood data. These principles have been modified over decades and have successfully governed accounting methods and the financial reporting systems of businesses. Different principles have been created for various kinds of business entities, like for-profit and not-for-profit companies, governments and other enterprises.

GAAP are guidelines and often open to explanation. Approximation have to at be made times, and they need good trust towards precision. Nowadays "creative accounting" is predominant in corporate world, this is when a company moves forward to make their business appear more profitable than it might really be. This is also called massaging the numbers. This can get unrestrained and hastily turn into accounting scam, which is also called cooking the books.

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