Accounting is a complicated subject, and involves elements of both academic theory and actual business practice. Furthermore, standard accounting practices vary by industry and even national standards are often different. Keeping that in mind, both private industry and governmental entities have taken significant steps toward harmonization of accounting standards over the last few decades. A major results of that effort here in the U.S. is the development of a set of accounting standards called the Generally Accepted Accounting Principles (GAAP), to which listed U.S. companies must adhere.
GAAP
GAAP represents a general set of accounting principles and procedures that companies use to determine profits, losses, and earnings, and to compile their financial reports. GAAP is in some sense a practical compromise, and it was developed from both academic research in accounting and the usual methods that businesses have used to record revenues, expenses etc. for many years.
In specific, GAAP consists of three broad sets of accounting standards: (1) basic academic accounting principles and guidelines, (2) the rules and standards promulgated by the Financial Accounting Standards Board (FASB), and (3) commonly accepted industry practices.
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