GAAP Compliance and the History of the High Five: The Link Revealed

 

  So you’ve dazzled your friends and family with the history of the high five and left them with a  promise for more. Forget watching the end of “Breaking Bad,” this is clearly what they have been desperately wanting a conclusion to all week. Now for how in the world the history of the high five relates to GAAP compliance:

 

    The key take away from the history of the high five is that we teach, learn, and grow to agree upon meaning for certain rules and rituals of communication including expressions and mutual gestures. This allows us to relay the message we want, short and sweet. This isn’t a new concept. Those with limited communication due to communication barriers have long understood what it means to have a means, medium, or rules for communication and engagement for success in growing and networking as individuals or groups. When those rules are habitual to a group, it allows for easy communication that is quickly understood. Just like over a century this was done with developing the high five as a simple means of sharing excitement, the same can be said for the rules of accounting and demonstrating financial success/excitement.

 

    If you want to communicate success, how do you do it? By speaking the language that everyone understands: GAAP. That’s not to say there aren’t other rules/languages, but that is the means of communication you and everyone else in the space have agreed to use in that space. Communication errors and barriers exist once you pull away from the rules. When you recognize revenue, the best way to eradicate communication errors and barriers when looking for funding is by being GAAP compliant, the sooner the better.

 

    GAAP, the generally accepted accounting principles, allows for companies of all sizes, ages, and stages to understand the joy of success you are trying to communicate without risk of overvaluation and potentially looking like you incurred a huge loss: for start-ups, anything but constant ramp up can be a sign of disaster and funding will sure to find other opportunities. Your revenue recognition process is important as it is the chosen form of communication of success and potential to others.

 

GAAP: (http://www.accountingfoundation.org/gaap)

GAAP Compliance and the History of the High Five:(http://www.prorata.com/blog/uncategorized/gaap-compliance-and-the-history-of-the-high-five/)

 

Welcome ProRata, Your Revenue Recognition Solution of Choice for Startups and SMBs

Are you aware of how your finance staff is spending most of their time?

In a recent study by the APQC found that finance workers spend 50% of their time doing transaction processing. That’s half of their day! Here are the results of the study.

 

how finance people spend their time

 

“This means that in an average work week, highly paid finance staffs are spending the equivalent of Monday morning through lunchtime on Wednesday making sure that bills get paid, customers get accurate invoices, general accounting work gets done, and fixed assets are accounted for, among many other tasks that keep the money moving through an organization.”

Mary C Driscoll, Senior Research Fellow at merican Productivity and Quality Center, via CFO.com

What would executives and board members prefer their finance staff to be doing?

According to the articles this time spent doing transaction processing, maintaining internal controls and financial reporting doesn’t leave much time for decision support and strategy, the area most executives need focus in.

Companies are looking for ways to spend less time on transaction process and other menial tasks and focusing their highly talented financial staff in decision support.

This problem exists in not only large companies, but even SMBs and startups. The less time spend doing menial tasks by finance staff, the more time that can spend helping to grow the company.

 How Automation of Menial Tasks Can Free Up Resources

Applications and technologies can automate processes and free up valuable time spent doing menial tasks such as revenue recognition. Even with today’s stats of 50% of staffs time being spent on transaction processing, that number used to be a lot higher. Automating menial tasks can free up resources and allow finance staff to be more productive and contribute to strategy and decision support.

 

Deferred Revenue Accounting

What is Deferred Revenue?

Deferred revenue is revenue you have received payment for but can not be realized. Think of it as pre-payment for goods or services that a company is expected to provide to the purchaser at a later time. Deferred revenue is also called unearned revenue because, as the name states, it has not been earned yet.

Accounting for Deferred Revenue

In accounting, a “Deferred Revenue” liability account is used to track deferred revenue for services that have been sold but not yet performed. At the time of sale, the Deferred Revenue account will be credited (increased). Over time, usually monthly, your deferred revenue will be debited (decreased) and your earned revenue will be credited (increased). More on how to calculate deferred revenue

What is Unearned Revenue?

Unearned revenue is another term that can be used interchangeably with deferred revenue. It is simple revenue that has been collected but not yet provided.

Deferred Revenue Accounting in QuickBooks

ProRata simplifies the manual and sometime inaccurate procedures that are needed to track deferred or unearned revenue in QuickBooks. ProRata automates the process and makes it simple enough that someone without an accounting background can do it. ProRata works in conjunction with QuickBooks to manage deferred revenue journal entries.