Glossary

Generally Accepted Accounting Principles (GAAP)

The common set of principles, standards, and procedures established by the Financial Accounting Standards Board (FASB) that companies use to compile their financial statements.

Tips

Many small businesses do not prepare their financial statements in accordance with GAAP. Many sophisticated buyers include language that presumes the seller is preparing their financial statements in accordance with GAAP. Many sellers miss this language, and the buyer often proposes a reduced purchase price during due diligence when it is discovered that the seller’s financial statements are not prepared in accordance with GAAP.

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