what is gaap 
generally accepted accounting principles gaap are the rules by which publicly owned united states companies must prepare their financial statements it is the guideline that explains how to record transactions when to recognize revenue and when expenses must be recognized international companies may use a similar but different set of rules called international financial reporting standards ifrs the bottom linefinancial statements are the ticket to the external evaluation of a company s financial performance the balance sheet reports a company s financial health through its liquidity and solvency while the income statement reports its profitability a statement of cash flow ties these two together by tracking sources and uses of cash together these financial statements attempt to provide a more clear picture of a business s financial standing 