The contemporary business setting in the US calls for a basic understanding of Generally Accepted Accounting Principles (GAAP). As a standard set of accounting rules and norms recognized by American entrepreneurs, established businesses in the country adhere to the regulations set in the GAAP without hesitation.
But how about small business owners? Given their limited client network and a business cash flow that is considerably less complex than growing enterprises, do they still need to follow GAAP procedures?
In the same way that companies with more expanded business operations deal with estimates and judgments in business accounting, small business owners also grapple with similar concerns. It is for this reason that the value of using GAAP is also pertinent to these entrepreneurs.
To give you a clearer perspective on the basics of GAAP, here are some of the reasons why GAAP is extremely vital in the creation and interpretation of financial statements:
Consistency
Taking charge of your business cash flow is complicated in itself. The good news is, you can do something to improve the process: the use of GAAP. Through these standards, you can have access to more accurate and consistent financial data, since your business financial processes are patterned after GAAP.Relevance
For small business owners, relevancy in creating financial statements is a pre-requisite in the pursuit of a successful cash flow. With the use of GAAP, you can change the entire process of putting your financial information together. Through these standardized accounting terms and principles, using financial data with similar benchmarks becomes a breeze.Credibility
When it comes to your business finances, making the slightest mistake can lead to serious money troubles. This is why you have to take extra caution in making sure that your financial statements are generated accurately using a credible set of principles. By adhering to the standards set by GAAP, you can easily reduce the risk of fraud and error in your financial statements.Uniformity
While working out your critical business numbers is difficult enough, doing the math on your own will likely make it more complicated. Using GAAP can improve the process, because it brings in a unique scale in reporting the financial progress of your business. In contrast, generating your financial statements using various accounting terms and principles can have a negative impact on the results of your financial reporting initiatives. This is especially the case when you are comparing notes and collaborating with other businesses. The importance of GAAP in businesses in the US cuts across the phase and size of an enterprise. So the next time you begin to doubt the value of GAAP in your financial statements, think about its role in making your financial information consistent, relevant, credible and uniform. Ready to find out all you need to know about financial reporting and analysis to improve your business financial position? Click here for more information.
