What is GAAP and are you required to comply with GAAP?
I am an analytical accountant and to me accounting and bookkeeping is not a free for all. I like abiding by rules for recordkeeping and bookkeeping. Bookkeeping for small business can become chaotic because by the time that I’ve been brought in there’s no separation between personal owner expenses and business expenses.
GAAP or Generally Accepted Accounting Principles is a rulebook that companies use when creating financial statements for investors, lenders and auditors, companies that issue stock and/or publicly traded.
Even though small businesses are not required to comply with GAAP because they are most likely using cash basis accounting, it’s good practice if the company develops a need to secure outside funding. If that happens, the company will be required to switch from cash basis to accrual and will need to show the truth about the financial health of the business. Switching from Non-GAAP to GAAP can be tricky and time consuming.