Is QuickBooks GAAP compliant?

GAAP is one of 7 standard was of doing accounting, if your company is publicly listed (US stock exchange) then you must use GAAP, other wise ....

see this for more on GAAP,  http://onsale-apparel.com/Rustler/gaap

But first your friend is full of it, second yes if you wanted to use GAAP in QB you can do so, there is no reason to, but you can

I would say QBO is built more from a tax standard than a true GAAP standard that could hold up to an external audit on its own without manual work-arounds.  With any system, you have to make accruals, but QBO is a bit clunkier because they try to oversimplify through automation and the automation is hard to work around.  For instance, in my practice, I need to accrue revenue for unbilled time.  Just trying to figure out how to get that number into my financials in the correct spot (rolling up to AR) was extremely tricky and still doesn't really work well because it tries to force me to make a payment against the journal entry.  I have had plenty of QB specialists not understand the concept of unbilled revenue and accrual accounting.  Desktop doesn't have as much of a problem because it has more bells and whistles.  Technically speaking, if you can make a journal entry in a system, you can get it to GAAP.  

It may be easier to ask your coworker to give you an example and we can address it specifically.

QBDT for certain is accrual accounting with the option of Cash reporting. Even when one makes the selection of tax tracking in company setup for Cash a reports are presented as default Accrual.

When it comes to QuickBooks, the revenue recognition principal was not a core concern during development. QuickBooks was designed as a book keeping system. Its appeal to startup companies is that it is affordable and provides the basic needs. However, for software startups that want to grow and expand, QuickBooks is not the solution.

Software companies that are focused on growth need an accounting system that supports their business. They need a solution that at least provides general ledger, accounts receivable, and accounts payable functionality. In addition, they may want to consider revenue recognition automation, GAAP compliant financial statements, centralized database, and Sarbanes Oxley compliance.

Is QuickBooks GAAP compliant? Not on its own. To be GAAP compliant, QuickBooks needs the help of additional spreadsheets or other systems. In the long run, this means additional expense in terms of other systems and additional manpower to properly track sales. Although QuickBooks may appear to be the cheaper solution in the beginning, it will cost more in the end and the great part is that still is the most loved accounting application which is used widely by accounting community.

Regards,

Adrian

Sr. QuickBooks Cloud Consultant

---

@AdrianG001 wrote:

When it comes to QuickBooks, the revenue recognition principal was not a core concern during development. QuickBooks was designed as a book keeping system. Its appeal to startup companies is that it is affordable and provides the basic needs. However, for software startups that want to grow and expand, QuickBooks is not the solution.

Software companies that are focused on growth need an accounting system that supports their business. They need a solution that at least provides general ledger, accounts receivable, and accounts payable functionality. In addition, they may want to consider revenue recognition automation, GAAP compliant financial statements, centralized database, and Sarbanes Oxley compliance.

Is QuickBooks GAAP compliant? Not on its own. To be GAAP compliant, QuickBooks needs the help of additional spreadsheets or other systems. In the long run, this means additional expense in terms of other systems and additional manpower to properly track sales. Although QuickBooks may appear to be the cheaper solution in the beginning, it will cost more in the end and the great part is that still is the most loved accounting application which is used widely by accounting community.

 

Regards,

Adrian

Sr. QuickBooks Cloud Consultant

---

And just how do you think that QB is missing these key ingredients? Those of us rooted in QBDT since the last century have been utilizing these 3 exact tools all along.  QBSE aside since it doesn't even qualify as a check register, only QBO Simple Start lacks A/P and to be sure, most mom and pop operations woudl not know what to do with the General Ledger report. 

I had a client who entered all sales in JE, one for teh sale, and one for the payment, and then would reconcile the bank account, ON PAPER, and never in QB.  That was an operation that should have had JE function turned off!

No SYSTEM can be "GAAP-compliant", but some work better than others to meet GAAP compliance.

GAAP (Generally Accepted Accounting Principles) are accounting practices that accountants follow, not anything that the software does for you.  One part of GAAP is requirement for accrual-basis accounting.

QB and QBO are both cash-basis systems, so to follow GAAP you must work around system defaults and skip some of the automated functions that are all cash-basis, such as posting expenses from bank feeds.  

Note:

Accounting is done on cash or accrual-basis.

Income taxes are done on cash or accrual-basis. 

These are two different decisions that a company makes and they do not have to be the same.

Meaning is the same for accounting or taxes, cash-basis are only transactions where cash is exchanged.

There are 10 GAAP Principles, which include accrual-basis accounting. (Tax is a separate decision to make).

GAAP are accounting practices performed by an accountant not a system so no accounting software can  "approved" as GAAP compliant.  That is like saying a car is approved for no accidents, not possible since any car be in an accident, only the driver can have or not have accidents in the car. 

Rustler -

What are these 7 ways to do accounting -- where you say GAAP is only one of them?

Agree that public companies must do accrual-basis accounting, but they are not the only ones.

ALL companies with contracts with Federal Govt are required to follow GAAP and accrual-basis accounting.

This is regardless of size, even as small as one owner/employee and there are many of them on Quickbooks.

@Rustler - 

[Content Removed by Moderator]

US GAAP (Generally Accepted Accounting Principles) are the ONLY current US accounting standards.

These are required for all public companies who file with SEC and all Federal Government contractors.

This has been the same for the last three decades that I have done accounting and has never changed.

[Content Removed by Moderator]

@mmb3 - 

Agree, GAAP accrual-basis accounting requires different entries than QB or OBO is setup to do, so it is more difficult to do accrual-basis entries, since the system tries to force you to automated cash entries.  Assume by now you have found a workaround to record entries needed to accrue revenue per GAAP. Here are the entries as required, perhaps you can share here the workaround that you are now using? 

Example:

On month-end date, like 04.30.20

- Debit AR Unbilled (Asset)

- Credit Revenue (Income)

This accrues revenue in current month P&L and temporary AR Unbilled on BS till billed.

On date invoice is sent to customer, like 05.05.20

- Debit AR Billed

- Credit AR Unbilled

This is the date billing actually occurs and the clock starts ticking on invoice due date.

On date customer payment is deposited, like 06.05.20

- Debit Cash (Bank in QB)

- Credit AR Billed 

This removes invoice from AR Aging since paid. (Hope you found a way to shut-off Undeposited Funds).

Also agree, this is much easier to do in QBDT.  Great to see someone who knows about AR Unbilled!!

However, it does seem there is some confusion here about what you are calling IRS "tax standard."

There is no such thing.  The IRS does not and cannot dictate how you do your accounting on books.

They can only dictate what/how you put numbers on the income tax return forms, like 1120, K-1, etc.

As explained in my response further below:

ACCOUNTING can be done on CASH-BASIS or ACCRUAL-BASIS

TAX RETURNS can be done on CASH-BASIS or ACCRUAL-BASIS 

These are two separate decisions made by the company that do not have to be the same, but helps a bit.

Here is what I have seen at the 90 companies I have provided help to:

Most small businesses do Cash-basis accounting and Cash-basis taxes.

Public companies and Govt contractors of all sizes must do Accrual-basis accounting, but can choose to do taxes on cash-basis or accrual basis. Company choice, but must be decided and done consistently.

They can change their mind and switch taxes from cash to accrual, but think must wait 5 years to change.

The reason some small companies do Accrual-basis accounting but Cash-basis taxes, is because they do not want to pay taxes on revenue accrued when they have not yet received the cash yet.  Good reason.

When companies get larger, they usually move to Accrual-basis accounting and Accrual-basis for taxes. Have never heard of any company doing cash-basis accounting and accrual-basis taxes. No reason to.

The co-worker above, who tried to help, was partly correct. I am sure he heard somewhere but did not quite explain correctly.  

---

@mmb3 wrote:

I would say QBO is built more from a tax standard than a true GAAP standard that could hold up to an external audit on its own without manual work-arounds.  With any system, you have to make accruals, but QBO is a bit clunkier because they try to oversimplify through automation and the automation is hard to work around.  For instance, in my practice, I need to accrue revenue for unbilled time.  Just trying to figure out how to get that number into my financials in the correct spot (rolling up to AR) was extremely tricky and still doesn't really work well because it tries to force me to make a payment against the journal entry.  I have had plenty of QB specialists not understand the concept of unbilled revenue and accrual accounting.  Desktop doesn't have as much of a problem because it has more bells and whistles.  Technically speaking, if you can make a journal entry in a system, you can get it to GAAP.  

It may be easier to ask your coworker to give you an example and we can address it specifically.

---

@Adrian - I agree with you.  QB revenue recognition does not exist.  All customer billing is on cash basis and there are additional conflicts with GAAP as far as internal controls. Never seen a public company requiring SOX using QB. I think whenever a system tries to work for everyone, features get mediocre for everyone. 

@AdrianG001 - Agree QB does not work well for revenue beyond cash sales without doing workarounds. QB does not do accrual-basis revenue or complex revenue formulas without computing outside of system, which defeats the purpose of having a system in the first place if it cannot do the accounting you need in a matter of minutes. If you must manually pull data out of the system into Excel for basic monthly accounting, then it is time to purchase a proper system that can manage the accounting your company needs to do.

QB has AP, AR and GL, but with some very restrictive functions in my opinion as an accountant where I know what I need to do and do not like having to work around forced functions. For example, for GAAP accrual-basis accounting, you must record revenue in the month earned, even if not billed and paid till next month. QB records revenue on the same date as customer billing so you must work around all that. When you have multiple customers and contracts with multiple revenue types, automation is important.

@AugustZellmer @Rustler 

No SYSTEM can be "GAAP-compliant", but some work better than others to meet compliance.

 

GAAP (Generally Accepted Accounting Principles) are accounting practices that accountants do, nothing any SW does for you.  One part of GAAP is requirement for accrual-basis accounting.

 

QB and QBO are both cash-basis systems so to follow GAAP you must work around defaults and skip some automated functions that are all cash-basis, such as posting expenses from bank feeds.  

 

Note:

Accounting is done on cash or accrual-basis.

Income taxes are done on cash or accrual-basis. 

These are two different decisions that a company makes and they do not have to be the same.

Means same for accounting or taxes, cash-basis are only transactions where cash is exchanged.

 

There are 10 GAAP Principles, including accrual-basis accounting. (Tax is separate decision).

GAAP are accounting practices performed by an accountant not a system so no accounting software can be "approved" as GAAP compliant.