GAAP (Generally Accepted Accounting Principles)
Definition
The standard set of accounting rules used in the U.S. for preparing financial statements, covering how and when revenue, expenses, assets and liabilities are recorded.
Want a deeper explanation?
Most small businesses are not required to follow GAAP strictly, but lenders, investors and buyers expect financials close to it. Accrual accounting and proper inventory treatment are the core.
The further your books drift from GAAP, the more work it takes to get funded or sell. Watch for: cash-basis or tax-basis books presented to a lender as if they were GAAP.
Example
A lender asks for GAAP-basis financials, so inventory must be at cost on the balance sheet and COGS matched to sales, not purchases.