What does it mean to be GAAP compliant? Does it mean the debits equal the credits? No! Does it mean all transactions are entered into QuickBooks? No! Being GAAP compliant means that a company has followed Generally Accepted Accounting Principles (GAAP) and its financial records show prospective investors that the company has followed standard accounting practices. As an entrepreneur or new business owner, it is easy to get too preoccupied with your great idea to remember to implement GAAP, and it is difficult to know where to begin to get your business GAAP compliant—that is where your accountant can help.

GAAP compliance explained

Being GAAP compliant essentially means that you have maintained financial records in a way that allows investors, lending institutions, prospective buyers, etc. to make a sound decision regarding your company. For the average entrepreneur or small business owner with a terrific idea or great product, GAAP will not even be on the radar. As soon as you need some financing for expansion or are approached by a potential buyer, however, you will need to be compliant.

4 steps to GAAP compliance

You might feel extremely overwhelmed when your accountant begins assessing your situation and you have neglected to keep good records, if any. Though this can be stressful—accountants have seen it all. Believe it or not, it is common for a company’s “records” to be a mix of bank statements, copies of receipts, notes written on napkins, and a very disorganized QuickBooks file.

After assessing your records, your accountant will:

1. Set up a meeting to learn more about your business. Your accountant will be looking to pinpoint your concerns, expectations, and goals for the future.
2. Explain to you that following GAAP rules means recording prepaids, accruals, capitalizing and depreciating fixed assets, proper revenue recognition, etc.
3. Go through your accounts and begin explaining to you what is and is not currently GAAP compliant on your trial balance.
4. Advise you on what you need to do going forward.

More often than not, investors and lending institutions are going to give your company some time to get GAAP compliant—which means the accountant’s job is just beginning. Typically they have to hustle to get things done, and done right. Investors, lending institutions, and prospective buyers will be happy once the accountant has signed off, because they will have a clear picture of how your business works and whether they can continue to move forward or not.

Long lasting relationship

Once your accountant has helped your company become GAAP compliant, you will know who to turn to when you’re unsure about recording a transaction. A good accountant will be there for you to further understand your industry and what could potentially impact your business. Your accountant will be able to see what opportunities are out there for your business that you might not be taking advantage of, and also what kind of tax consequences will result from your business decisions.

Entrusting your accountant to get your company GAAP compliant is only the beginning of forging a long lasting relationship.

For more information on GAAP-compliance, contact us.