Glossary
Compliance & Tax

GAAP

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

GAAP is a set of standardized accounting principles that guide how organizations in the U.S. prepare and present financial statements.
GAAP, or Generally Accepted Accounting Principles, is a set of standard accounting rules and guidelines used in the United States to ensure consistency, transparency, and integrity in financial reporting. These principles are established by the Financial Accounting Standards Board (FASB) and must be followed by all publicly traded companies, nonprofits, and many private organizations. GAAP encompasses a broad range of policies covering how financial statements are prepared, how revenue and expenses are recognized, and how assets and liabilities are recorded. For nonprofits, adhering to GAAP is essential for producing credible, comparable financial statements that accurately represent the organization's financial position for donors, regulators, and the public.

Key Takeaways

  • GAAP sets the standard for accounting practices in the U.S.
  • Following GAAP ensures financial transparency and consistency.
  • Nonprofits use GAAP for donor trust and regulatory compliance.
  • GAAP compliance is required for audits and public reporting.

Why It Matters

GAAP ensures nonprofit financial statements are credible, consistent, and comparable.

Real World Example

A nonprofit organization receives a government grant and several donations throughout the year. To ensure accurate and transparent financial reporting, the nonprofit uses GAAP guidelines to properly record the grant as restricted revenue and the donations as unrestricted. When preparing its annual financial statements, the organization classifies all assets, liabilities, and expenses according to GAAP requirements. This allows the nonprofit to present clear, standardized reports to its board, comply with IRS regulations, and assure donors that their contributions are being managed responsibly.

How Aplos Helps

Aplos accounting software is designed with GAAP compliance in mind, helping nonprofits automatically apply proper accounting standards to their financial records. With features such as fund accounting, customizable reports, and clear audit trails, Aplos enables organizations to generate GAAP-compliant statements for board members, donors, and auditors.
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Frequently Asked Questions

What does GAAP stand for?

GAAP stands for Generally Accepted Accounting Principles, the standard framework of guidelines for financial accounting in the U.S.

Why is GAAP important for nonprofits?

GAAP ensures nonprofit financial statements are consistent, transparent, and meet regulatory and donor requirements.

Does Aplos support GAAP-compliant accounting?

Yes, Aplos provides features that help nonprofits maintain GAAP-compliant records and generate proper financial statements.

Who sets GAAP standards?

The Financial Accounting Standards Board (FASB) is responsible for establishing and updating GAAP in the United States.

Related Terms

Grantor
Gift‑in‑Kind
Donation Receipt
Recurring Donation
Whistleblower Policy
Conflict of Interest Policy

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