“What is GAAP?”
“Why do GAAP accounting standards matter? How are they different than ordinary bookkeeping?”
“When should my business make the switch to GAAP accounting?”
If you’ve been searching for answers to these or similar questions, you’re not alone. For such a critical topic, it can be frustratingly difficult to find clear, jargonless guidance about GAAP. The good news is that if you’re reading this article, you’ve come to the right place.
Let’s start with the basics. GAAP is an acronym that stands for Generally Accepted Accounting Principles. The purpose of GAAP is to standardize the recording and reporting of financial data. Basically, GAAP is the common language of the accounting world.
Accordingly, if you need to communicate financial information about your company to any third party—be it a bank, potential investor, auditor, or prospective buyer—you’ll need to “speak” GAAP. In fact, the Securities and Exchange Commission requires that all public companies comply with GAAP standards, and virtually every source of private capital expects the same.
So why doesn’t every company adopt GAAP from day one? Because, to put it mildly, the standards are complicated.
GAAP-compliant organizations, for instance, need to use the accrual accounting method. That means tracking and forecasting finances in advance of money actually entering or leaving accounts. In other words, you need to be able to accurately predict the future in precise, objective detail.
Additionally, it’s a not a job most bookkeepers or non-accountants can handle.
As a result, countless businesses postpone hiring an accountant and switching to GAAP until it becomes absolutely necessary. If you wait too long, however, the cost and complexity of switching can skyrocket. The bottom line: this is a challenge you’ll have to face now or later, and timing is everything.
Fortunately, tempCFO’s Controllers and CFOs have made navigating that challenge as easy as possible. Schedule time today to talk with our team of experts about how GAAP can be best utilized for your business.
Looking for more information on GAAP? We have a brief whitepaper detailing why it matters to your business, and its benefits, as well as the difference between accounting methods, tax implications to be aware of, and timing issues to consider.