Accounting is the art, or science, of laws, rules & regulations that govern how to record certain transactions that occur in the everyday business life. Some of these transactions are regulated by Federal or Local Government laws and by following GAAP standards.
GAAP stands for Generally Accepted Accounting Principles. It's a framework used in the United States for financial reporting. Essentially, GAAP provides a set of standardized guidelines, rules, and procedures for preparing financial statements. These principles ensure consistency, comparability, and accuracy in financial reporting across different organizations.
The main objectives of GAAP include providing relevant and reliable financial information to stakeholders such as investors, creditors, and regulators. This information helps them make informed decisions about the company's financial health and performance.
GAAP covers various aspects of financial reporting, including:
Recognition: When and how to recognize revenues, expenses, assets, and liabilities in financial statements.
Measurement: Determining the monetary amounts at which various elements of the financial statements should be recorded.
Presentation: How financial information should be presented in the financial statements, including formats and disclosures.
Disclosure: Providing adequate information in the footnotes to the financial statements to ensure transparency and completeness.
Consistency: Ensuring consistency in accounting policies and practices from one period to another.
Comparability: Facilitating the comparison of financial information among different entities and over different periods.
Compliance with GAAP is essential for companies that are publicly traded in the United States. It helps ensure transparency, accountability, and trust in financial reporting. Additionally, adherence to GAAP is often required by lenders, investors, and regulatory bodies. New tax laws can change the way business is documented, and new credits can become available for you to adjust your taxable income.
This is why you need to have an accountant that knows how to record these transactions and how they will affect your tax return. You started a business because you love what you do. You didn’t start the business so you could spend hours trying to figure out how to record the transactions so you only pay taxes on the true income collected. You’ll want to look for someone who is keeping up with the laws & changes to GAAP reporting. You can find that here with Standing Stone Accounting, LLC – Linda Baker.