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Definition: GAAP, short for "Generally Accepted Accounting Principles", are a set of principles that govern domestic accounting practices. These principles include--but certainly aren't limited--how to account for expenses and liabilities. Companies must abide by these principles.
StockJargon Advice: Companies often try to sidestep the GAAP rules in order to improve their financial statements. This is where they often run afoul. Enron misaccounted for many of its liabilities, which ultimately lead to its downfall. WorldCom also capitalized costs that it should have expensed, causing it to restate its financials. Both companies went bankrupt.
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