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Are you following GAAP?

Speed limits, stop signs, no left turn on red lights, yield to pedestrians, etc. These are rules everyone has to follow in traffic. If these rules were not in place there would be chaos and if any of these rules are broken, there are consequences like a traffic ticket or an accident. Just like in traffic, accounting has rules that need to be followed so there is not chaos.

These rules are called Generally Accepted Accounting Principles or GAAP. GAAP governs the way a company presents their financial statements and the SEC (Securities and Exchange Commission) requires this by publicly traded companies. These rules also apply to the majority of favorable creditors and bank lenders when you are applying for a loan. Most of these institutions will be cautious when financial statements are not prepared using GAAP.

When I dig into a company’s financials for the first time, the number 1 problem I see is they are not following GAAP. A lot of businesses want to save money monthly by doing the bookkeeping themselves or hiring a cheap bookkeeper that has little to no accounting experience. This will save a business money in the short term. But if a business applies for a loan that will help them generate more money long term and they keep getting denied, this is probably because they are not following GAAP. This will lead to the business missing out on opportunities to build up the business euqity and they will lose money long term.

If you are not following GAAP as a business owner or professional accountant, please take a look at the attachment. This explains in accounting terms the 10 GAAP principles that you need to know to manage your business financials. I believe if you follow these rules, you will understand how to make more money and you will not be denied by creditors and banks anymore.

If you have any questions or need any explanation for any of these 10 principles, please contact me today!


Generally Accepted Accounting Principles
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