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All companies need some form of accounting in order to track the financial data that flows through its operations. In the United States, the authoritative accounting standards are generally accepted accounting principles (GAAP), which apply to most businesses in operation. The best tips for GAAP financial reporting include the use of double entry accounting, implementation of internal controls within a company, and the use of a certified public accountant (CPA) when a technical question exists. As companies grow and expand, so does the need for more complex GAAP financial reporting. That is why it is best for a company to only handle accounting tasks to a certain point then let a professional take over.
Double entry accounting is the traditional and oldest form of accounting currently in use for most businesses. It is a self-balancing ledger that follows the most basic accounting equation: Assets equal liabilities plus owner’s equity. Debit and credits represent the dollar amounts for each business transaction; one rule for GAAP financial reporting under double entry accounting is that debits must equal credits. The second rule of double entry accounting is that total assets equal total liabilities, which helps to maintain balance on both sides of the accounting equation. In short, this accounting process is the building block for all other accounting processes.
Internal controls are the limitations and restrictions put into place that protects a company’s financial data. These controls can be wide ranging and cover a large part of all activities within a business. A few common examples of internal controls, for example, include the separation of accounting duties among employees, password-protected computer files for accounting software, and physical counts of inventory in order to reconcile the accounting ledger. GAAP financial reporting has become more scrutinizing on a company’s internal controls due to recent and past financial scandals. Large companies are especially scrutinized on internal controls and the ability of employees to abuse a company’s financial data.
Accounting is easy to understand in its most basic form, which is why most business majors take a college accounting course. Unfortunately, there are many areas of accounting under GAAP financial reporting that quickly become complex. Therefore, a company should hire a CPA whenever specific advice is necessary on technical financial data. CPAs have both the technical training and experience to handle most accounting tasks, including audits, which can help point out deficiencies in a company’s financial reporting process. These individuals can also act as liaisons between the company and government tax authorities or some regulatory agencies.