Request for Assistance: GAAP Compliant Reports for Lenders
Hello, I’m the CFO of a small company with around 40 employees. We recently approached a lender for funding, and they require GAAP compliant reports. Currently, our Accounting is based on tax principles and does not adhere to GAAP standards, mainly because we are privately held and have no plans to go public.
I would like to understand how GAAP reports differ from tax basis reports. Additionally, I’m looking for efficient ways to generate these GAAP compliant reports for the lender without having to manually transfer a lot of information. We are using QuickBooks Online for our Accounting.
As creating GAAP reports is somewhat outside my area of expertise, I would greatly appreciate any guidance or resources you can provide to help us navigate this process. Thank you!
One response
It’s great that you’re seeking to understand and meet your lender’s requirements for GAAP-compliant reports! GAAP (Generally Accepted Accounting Principles) emphasizes consistency, transparency, and the use of accrual Accounting, which differs from tax basis Accounting in several ways.
Key Differences:
1. Revenue Recognition: GAAP requires companies to recognize revenue when it is earned and realizable, regardless of when cash is received, whereas tax basis accounting often recognizes revenue based on cash received.
2. Expense Recognition: Under GAAP, expenses must be matched to revenues in the period they relate to, while tax basis may incur expenses when paid.
3. Assets and Liabilities: GAAP requires the recognition of assets and liabilities that may not be recorded under tax basis accounting, leading to more comprehensive financial statements.
Steps to Generate GAAP-Compliant Reports in QuickBooks Online (QBO):
Switch from cash basis to accrual basis in QBO. This will provide a better alignment with GAAP principles. You can make this adjustment in the settings.
Use QBO Reports:
Ensure you’re using the accrual method in your reports. Look for options to toggle between cash and accrual basis in the reports.
Reclassify Transactions:
Review any transactions that may not comply with GAAP. You might need to reclassify certain items to align them properly with GAAP guidelines.
Get a CPA on Board:
Consider consulting with a CPA who is experienced in GAAP reporting. They can help ensure your financials are in compliance and may also assist you in generating the necessary reports from your QBO data.
Consider Accounting Software Add-Ons:
If you find that QBO is not meeting all your reporting needs, you might explore integrations or add-ons that can help facilitate GAAP reporting.
Documentation:
Document any assumptions and methods used in preparing your financial statements as this will be useful for both you and the lender.
Review and Revise:
By taking these steps and possibly engaging with a professional, you should be able to produce GAAP-compliant financial reports efficiently without getting bogged down in manual processes. Good luck with your funding endeavor!