GAAP reference guide for small businesses (Max)

SOCIII guidance for Max (Accounting), 2026-10-21. U.S. GAAP is set by the FASB in its Accounting Standards Codification (ASC). This guide names the principles and the ASC topics a small business usually meets, so Max can say which rule a question turns on. It is a map, not the standard: quote the Codification itself, and leave judgment calls to the business's CPA.

Note on sources: the FASB's sites block automated link checks, so the ASC and Concepts Statement links below were not machine-verified on 2026-10-21. Confirm them in a browser (the Codification's free Basic View needs a sign-in).

When GAAP applies

• Most small businesses aren't required to keep GAAP books; many use the cash or tax basis. Lenders, investors and buyers often ask for GAAP statements.
• A company raising money under Regulation Crowdfunding must provide financial statements prepared in accordance with U.S. GAAP (reviewed or audited above certain offering sizes). [17 CFR 227.201(t), Instruction 3]

Core principles (FASB Conceptual Framework, Concepts Statements)

• Accrual basis: record revenue when earned and expenses when incurred, not when cash moves.
• Expense recognition ("matching"): costs are recognized in the period they help produce revenue, or when incurred if they have no future benefit.
• Historical cost: most assets are recorded at what was paid, with specific topics allowing other measures.
• Consistency: use the same methods period to period, and disclose a change.
• Materiality: an item matters if leaving it out or misstating it could change a reader's decision.
• Full disclosure: statements carry the notes a reader needs.
• Going concern: statements assume the business continues unless there is substantial doubt (ASC 205-40).

[FASB Concepts Statements; ASC 205]

ASC 606: Revenue from Contracts with Customers

The five steps:

1. Identify the contract with the customer.
2. Identify the performance obligations (the distinct goods or services promised).
3. Determine the transaction price.
4. Allocate the price to the performance obligations.
5. Recognize revenue when (or as) each obligation is satisfied.

Small-business consequences:

• Money received before the work is done is deferred revenue (a contract liability), not revenue yet. Example: a customer prepays a year of service; revenue is recognized month by month.
• Prepaid credits a customer may never use ("breakage"): when the business expects to be entitled to it, breakage is recognized in proportion to the customer's use of the credits; otherwise when the chance the customer uses them becomes remote. The written terms (e.g. credits that expire) matter. [ASC 606-10-55-46 to 55-49]
• Sales tax or GET charged to a customer: whether it is revenue or a pass-through depends on the tax and the company's policy; ASC 606 lets companies elect to present sales taxes net. Max keeps the tax line separate and the CPA decides the presentation.

[ASC 606]

ASC 842: Leases (awareness)

• A lessee records a right-of-use asset and a lease liability on the balance sheet for leases longer than 12 months.
• Leases of 12 months or less may be kept off the balance sheet under the short-term lease election.
• Common small-business leases: office or hangar space, vehicles, equipment. Flag a multi-year lease for the CPA instead of booking only the monthly rent.

[ASC 842]

ASC 330: Inventory basics

• Inventory is recorded at cost (purchase price plus costs to get it ready to sell).
• Inventory measured with FIFO or average cost is carried at the lower of cost and net realizable value; LIFO and the retail method use lower of cost or market.
• Cost of goods sold is recognized when the inventory is sold, which is what makes gross margin meaningful. (SOCIII rule: separate COGS from operating expenses.)

[ASC 330]

Other topics Max meets

• ASC 360 Property, plant and equipment: capitalize long-lived assets and depreciate them over their useful lives. (SOCIII rule: every capitalized asset gets a depreciation schedule.)
• ASC 350-40 Internal-use software: only certain development-stage costs are capitalized; the rest is expensed. (SOCIII rule: management-estimate valuations are labeled non-GAAP.)
• ASC 470 Debt: loans are liabilities with interest accrued as it's owed.

[ASC 360; ASC 350; ASC 470]

How Max uses this

• Name the principle and the ASC topic a question turns on, in plain language first.
• Never call statements "GAAP" without saying which basis the books are on (Max's default is accrual).
• Never decide a judgment call (a lease's terms, breakage estimates, a revenue timing question): show the data and the topic, and name it as a question for the CPA.

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