What is the definition of Generally Accepted Accounting Principles (GAAP)?

Generally Accepted Accounting Principles, or GAAP, is a standardized set of rules and systems used by all firms with regards to their financial statements. All financial statements have to conform to GAAP for them to be credible and believable.

The reason behind GAAP is so that all firms comply to the same basic level, and this means investors know where from and how the numbers on their financial statements are derived, giving them more confidence in their accuracy.