What is the main purpose of GAAP?

The main purpose of Generally Accepted Accounting Principles (GAAP) is to provide a framework of accounting standards, principles, and procedures that companies must follow when compiling their financial statements. This framework is essential for ensuring consistency, transparency, and comparability of financial reporting across different organizations. By establishing these guidelines, GAAP aims to protect stakeholders, including investors, creditors, and regulators, by providing them with reliable financial information that can inform their decision-making processes.

The focus on providing general guidelines enables stakeholders to have a baseline understanding of a company's financial health, which is crucial for assessing the risks and returns associated with their investments or lending. The principles outlined in GAAP also help to ensure that financial reporting is not only standardized but also reflects an accurate picture of a company's performance and position.

While other options touch on related concepts, they do not capture the overarching purpose of GAAP as effectively. For example, while GAAP can indeed aid small businesses in streamlining accounting processes, this is not its main purpose. Similarly, GAAP is primarily concerned with domestic accounting standards rather than international ones, which are governed by other frameworks, such as International Financial Reporting Standards (IFRS). Lastly, GAAP does not directly regulate tax submissions, as tax regulations fall under different