There are many ways accountants can do their jobs. For instance, general accounting is great for businesses, whereas fund accounting is more suited to church financial management.
As accountants tend to handle tasks like taxes, budgets, and payroll, it’s helpful (and at times required) for them to stick to certain standards and rules. One of the most famous of these is the GAAP principles.
Below is a brief description of these foundational accounting guidelines, as well as the 10 GAAP principles listed in order, along with brief definitions.
The term GAAP means “Generally Accepted Accounting Principles.” These principles provide a standardized element to accounting across all businesses. It codifies terminology, definitions of those terms, and accounting methodologies.
This makes it easier to provide transparent financial reporting. Financial consultants can also make assumptions based on those reports, and analysts can compare and contrast financial activity from one organization to the next. This is true regardless of whether this takes place in a building with a warehouse or one with a sanctuary.
GAAP principles are formalized, published, and updated by the Financial Accounting Standards Board (FASB). This group and its standards set the accounting tone in the United States. However, they aren’t universal. In fact, around the world, the International Financial Reporting Standards (IFRS) are more commonly utilized. Nevertheless, American companies of all sizes and from all industries recognize GAAP standards and requirements as part of doing business in the U.S.A.
The American Institute of Accountants (AIA) initially began developing GAAP and used the terminology for the first time back in 1936. This was in the wake of the Stock Market Crash. That disaster created the Great Depression and was partly due to inconsistent and unethical accounting behavior from major businesses. Since then, GAAP has continued to guide American accountants right into the 21st century.
The GAAP accounting framework centers on 10 key principles. Here they are, along with a brief explanation of each one:
The ten principles listed above are just a part of the GAAP framework. However, they are the central guiding elements from which the rest of the standards and requirements derive. They provide a clear, easy-to-follow path that accountants can use as they manage money, make financial decisions, and report related data on a regular basis.
At Chaney & Associates, we specialize in operating as the accounting firm for the church. In this context, that emphasis naturally leads to the follow-up question: how do GAAP principles influence church accounting?
The first thing worth pointing out here is that technically speaking, churches aren’t required to follow GAAP guidelines. Only certain government organizations and larger corporations must follow them by law.
Non-profits don’t have to follow these rules unless their own governmental boards mandate it. However, some churches choose to follow these standards as an effective way to maintain healthy, consistent, and transparent accounting practices. When you work with a Christian CPA (certified public accountant), like our team of experts at Chaney & Associates, you naturally integrate GAAP principles into your church’s accounting activity.
One of the best things about the 10 GAAP principles is that they don’t consist of unreasonable expectations or industry-specific requirements. They are generic, easily applicable, and ethically sound guidelines. They set the standard for consistent, high-quality accounting activity.
GAAP principles are important. However, implementing them can be a complicated and intensive process, even in a church setting. That’s where working with a third-party accounting solution can make things easier. If you’re trying to follow GAAP protocols, reach out, and our team can begin to help you align your church with a new standard of accounting excellence.