GAAP, or generally accepted account principles, is basically the Magna Carta of bookkeeping in the U.S. It established standard definitions and styles for financial reporting that have become uniform across all industries and businesses. Put simply, they’re the principles that all bookkeeping and finance professionals follow, as well as the standard gauge used by potential investors when comparing two or more businesses. Ann Marie Puig, a successful business owner and entrepreneur from Costa Rica, explains how implementing GAAP practices can improve business accounting practices.
By and large, your fiscal reports need to comply with GAAP, and a large number of your potential sources of capital need to see GAAP-based budget summaries to comprehend your business. GAAP accounting can help a business plan ahead and can serve as a type of financial crystal ball. Organizations utilizing GAAP must set up their reports utilizing similar strategies and numbers every time. Explains Puig, “This gives a progressively exact image of your income so you can recognize and anticipate income trends after some time. You’ll see that once you’ve done the switch you can foresee patterns you might not have had the capacity to see previously.”
GAAP utilizes the accrual method of accounting and identifies all transactions by their type in real-time. Since you can deal with your bookkeeping techniques as they occur, you’re less inclined to give things a chance to fall by the wayside or make arrangements while ignoring applicable exchanges that haven’t been paid for.
To give a more direct image of your organization’s execution and profitability, GAAP bookkeeping associates the expenses of items and services purchased, as well as the revenue from goods or services sold. Taking things to this level of detail provides a highly accurate picture of how spending habits and decisions can affect the company’s bottom line.
You may think you’ve monitored all the significant spending from your business, its departments or your employees, but spending sometimes goes beyond the line of site. GAAP gives you a complete perspective on the costs you’ve gathered in the manner your investors and other outsiders will see them. “Implementing GAAP policies is an opportunity to utilize the equivalent critical eye others will have on how you’re spending your cash and if your decisions are the best for the organization,” asserts Puig.
Since GAAP levels your financials so they can play on a similar field with different organizations, you would then be able to contrast your general execution with your rivals and pinpoint where you have to make changes. You can likewise pass judgment on the advantages of various money-related choices dependent on different organizations in your industry or with comparative plans of action. On the off chance that you see X organization’s books line up with yours and they settled on these choices and saw development, you will understand that you should see similar outcomes, as well. You likewise will understand what you’re facing compared to other businesses that have your investors have in their portfolios.
GAAP procedures will also make it easy for any accountant to understand the company’s numbers. If you’re forced to change bookkeepers mid-stream, there won’t be any difficulty or delays as a new individual sorts through the books. In addition, understanding GAAP procedures is a sure way to impress potential investors.