Glossary·Written by a CPA
GAAP
Also called: Generally accepted accounting principles
The official set of US accounting rules that public companies have to follow in their financial statements.
GAAP stands for generally accepted accounting principles, which basically just means the rulebook US companies use to prepare their financial statements. The rules are set by the Financial Accounting Standards Board, and the SEC requires public companies to follow them.
The point is consistency. When every company follows the same rules for things like when revenue counts and how to handle stock compensation, you can actually compare one company to another and one year to the next.
For you, when a company reports a non-GAAP number, it's stepping outside that rulebook. That's allowed, but the GAAP number is the one the auditors signed off on, so it's the place to start.
The catch. GAAP numbers aren't perfect either, and they still involve a lot of judgment, so reading the footnotes matters even with audited numbers.
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This is education, not tax or investment advice. I'm a CPA, but I'm not your CPA. Full disclaimer.