Here’s What You Need to Know About GAAP Compliance
Navigating the generally accepted accounting principles (GAAP) for business owners can feel overwhelming when dealing with confusing and inefficient financial processes. If you've ever found yourself buried in paperwork, unsure whether you’re following the correct guidelines, you're not alone!
We’re here to clear up the confusion and give you the tools you need to handle GAAP with confidence. Let's break down the essentials so you can streamline your processes and get back to what you do best – running your business.
What is GAAP?
Established by the Financial Accounting Standards Board (FASB), GAAP serves as the foundation for financial accounting in the United States. The principles guide how businesses record, summarize, and present their financial information – they are designed to provide a clear and reliable framework that helps companies maintain integrity in their financial statements.
There are 10 GAAP principles that all business owners should follow to make it easier for investors, lenders, and regulators to understand and trust the financial health of your company.
10 Generally Accepted Accounting Principles
1. Principle of Regularity
You should always follow the correct guidelines (set by GAAP) when preparing financial reports.
2. Principle of Consistency
Accountants should use the same methods each time they create financial reports to compare financial statements from different periods easily.
3. Principle of Sincerity
Be honest. Your financial reports should reflect the actual financial situation of your business—no exaggerating or hiding things.
4. Principle of Permanence of Methods
Similar to consistency, this means using the same approach over time so your financial reports are reliable and can be easily compared year after year.
5. Principle of Non-Compensation
Don’t mix up or offset what you owe (liabilities) with what you own (assets) or what you earn (revenues) with what you spend (expenses). You must report each separately to avoid confusion.
6. Principle of Prudence
Be cautious. Record expenses and debts as soon as possible to ensure they’re accounted for. However, only record income you are sure is coming to your business – not funds you assume you’ll get.
7. Principle of Continuity
Assume your business will continue to operate indefinitely – this affects how you value certain items on financial statements.
8. Principle of Periodicity
You should report financial activities over specific periods – like monthly, quarterly, or annually – to track and compare your business’ financial health.
9. Principle of Materiality/Full Disclosure
Include important details. If something could influence decisions, it should be in your reports. If something is too small to impact decisions, you don’t need to report it.
10. Principle of Utmost Good Faith
All parties involved in financial reporting should act honestly and present the financial information as accurately as possible.
How to Ensure GAAP Compliance
An efficient and streamlined accounting process is the best way to ensure GAAP compliance. Some business owners think they can hire a certified public accountant (CPA) to handle everything properly. However, if you aren’t recording your finances accurately or your system is disorganized, a CPA might not have all the necessary information to do their job correctly.
The best move is to use intuitive business management software with robust accounting features. In doing so, you’ll be able to automate many accounting processes, run complete reports with the click of a button, and get a full view of your company’s financial health in seconds. The right software will have GAAP compliance done for you.
GAAP Compliance with Storage Commander
With
Storage Commander’s powerful
single and multi-site reporting and dynamic
revenue management solutions, your business will have no problem with GAAP compliance.
Book a demo to see how Storage Commander can help transform your accounting processes.