Guide to GAAP Accounting Principles in SaaS Businesses (2024)

If you're running accounting for a high-growth SaaS business, you need to know the ins and outs of generally accepted accounting principles (GAAP). Read this overview of all things GAAP so you can ensure your companies numbers are always accurate and compliant.

When Lauren Bahr, CPA and VP of Finance at Occupier, joined for an episode of The Role Forward, she cited an AICPA study that found 75% of CPAs will retire in the next 10 years —and that the pipeline of college graduates in finance and accounting just isn’t there to replace them.

One way to spark a renewed interest in finance and accounting is to shed the perception of these roles as mere scorekeepers in favor of a push toward strategic partnership.

But for all the effort to elevate accounting’s role in the business, the fact remains that rigorous scorekeeping is still the top priority. You need to have your numbers right.

No effort to embrace a more strategic accounting role is possible without the foundation of solid GAAP financial statements month in and month out. Get that process in place first and then think about how you can layer more strategic initiatives on top.

Table of Contents

What Is GAAP?

GAAP stands for generally accepted accounting principles, a collection of compliances standards and rules from the Financial Accounting Standards Board (FASB). The 10 core principles provide a common set of procedures and requirements for reporting financial information, regardless of industry.

While GAAP is the common set of accounting rules in the United States, its international counterpart is principles-based accounting standards from the International Financial Reporting Standards (IFRS) organization.

Download this best practices template so you don't have to build your CoA from scratch.

Guide to GAAP Accounting Principles in SaaS Businesses (1)

The Importance of GAAP in SaaS

GAAP’s importance in SaaS, first and foremost, is a matter of compliance. If you’re a publicly-traded company, you are legally required to submit GAAP-compliant financial statements to the SEC on a quarterly basis. That’s the simple answer to why any SaaS accounting team should care about GAAP, but it’s not the only one.

The other side of GAAP’s importance in SaaS lies in its ability to create a common financial language for all stakeholders in and outside of your organization. The same way finance needs to find a common language with department leads to plan properly, accounting needs to adhere to GAAP standards so regulators, investors, and board members can understand financial performance relative to other organizations.

The common language of GAAP financials is valuable for private companies as well, even if they aren’t legally required to report them. Getting in the rhythm of GAAP reporting can help you:

  • Create stronger alignment with board members and investors who may not specialize solely in the SaaS space.
  • Keep you prepared for a financial audit at all times, so the process is minimally disruptive to your business.
  • Build a sense of confidence among potential investors by showing that your org has a stable foundation for operations.
  • Ensure you have the latest financial information ready off the shelf in case a potential investor or current one asks for something ad hoc.
  • Practice your financial storytellingin a way that weaves together GAAP and non-GAAP metrics to better describe the health of your organization.

Get Visibility Into Your Actuals in Real-Time with Mosaic

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10 Principles of GAAP Accounting

You can explore the FASB websiteto dig deep into the legalese behind GAAP standards. But it’s widely understood that the guidelines revolve around four constraints and 10 core principles.

The four constraints are:

  • Recognition. Financial statements must accurately and clearly reflect all assets, expenses, liabilities, and commitments for an organization following accrual accounting methods and strict revenue recognition rules.
  • Measurement. Report financials according to the core concepts/principles of GAAP.
  • Presentation. Provide regulators with income statement, balance sheet, cash flow statement, and summary of shareholder equity/ownership.
  • Disclosure. Further explain financial information using disclosures wherever necessary to maximize clarity.

These general guidelines underpin all of the 10 principles of GAAP accounting, which are as follows.


Accounting teams regulated by GAAP must always follow the standards when reporting financials. This principle makes clear that companies cannot modify or omit pieces of the requirements.


Companies following GAAP are expected to apply the standards consistently across all reporting periods. Any deviations must be disclosed.


Financial reporting, whether done by internal accounting teams or third parties, must be objective and accurate. Accountants must report the financial reality of the business.

4. Permanence

Similar to the consistency principle, this concept requires companies to maintain the same reporting methods and processes across all submitted statements. This principle is what ensures regulators and investors can compare financial reports across companies.

5. Non-Compensation

Any assets and liabilities must be presented as-is on financial statements. This principle ensures accountants do not compensate any debts or expenses with assets/revenue to paint the company in a better light.

6. Prudence

There should be no speculation or forecasting within the formal financial statements an accounting team produces. The GAAP reporting process is entirely fact-based, with forecasts reserved for dedicated, forward-looking guidance.

7. Continuity

The assumption when submitting compliant financial statements and reports is that the business entity will remain operational for the foreseeable future.

8. Periodicity

This principle ensures accounting teams maintain clear lines between time periods in reporting. If your financial report is covering the latest quarter, it should only provide details about the revenue and expenses from that quarter.

9. Materiality

Accounting teams must be thorough in reporting all available financial information for the given period. This principle assumes that accounting teams will provide any and all financial data of material interest when submitting reports.

10. Good Faith

This principle is an ethical standard that assumes anyone in a business providing GAAP reporting will be honest in all submissions.

The Four Financial Statements Required for GAAP Compliance

There are four different financial statements that GAAP requires companies to report: income statement (or P&L statement), balance sheet, cash flow statement/statement of cash flows, and the statement of owner’s equity.

We’ll use Snowflake’s December 2022 10-Q (the quarterly filing for public company financial reporting) to walk through examples of each statement.

1. The Income Statement

The income statement (called a statement of operations in Snowflake’s filings) provides an overview of the financial performance of a company’s operations. It begins with top-line revenue and includes line items for operating expenses, concluding with the company’s net income.

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Example income statement from Snowflake

This condensed example from Snowflake shows how a non-GAAP that you might use for internal reporting becomes a compliant income statement.

2. The Balance Sheet

The balance sheet provides an overview of a company’s financial position in terms of its assets (cash on hand, accounts receivable balance, investment returns, fixed assets, etc.), liabilities (accounts payable balance, deferred revenue, accrued expenses, etc.), and equity (preferred and common stock).

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Example balance sheet from Snowflake

3. The Statement of Cash Flows

The cash flow statement provides a summary of the changes in cash balance as well as both the sources and uses of cash in the business. It is meant to show whether or not a company has enough cash on hand to cover expenses, breaking sources of cash out into operating, investing, and financing activities.

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Example cash flow statement from Snowflake

4. The Statement of Owners’ Equity

The statement of owners’ equity, also called either the statement of stockholders’ equity or statement of shareholders’ equity, combines information from the income statement and balance sheet to show changes in the equity value of a company. It shows share capital and retained earnings (or net loss).

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Example statement of stockholders' equity from Snowflake

How Mosaic Supports Transparency for GAAP and Non-GAAP Reporting

The job of an accounting team is, above all, to make sure that financial data is reported accurately and in compliance with GAAP standards as necessary. But the job can’t stop there. According to Parker Gilbert, CEO and Co-Founder of Numeric, you have to do so much more.

It’s not good enough anymore as an accounting team to just prepare a set of audited financial statements. There are things you need to do to make sure that you are ready to produce your financials at the end of the month, quarter, and year. But what stakeholders are really asking for on an ongoing basis is much higher level detail into your accounting data.

Parker GilbertCEO and Co-Founder, Numeric

The most strategic accounting teams can maintain the mission-critical work of producing GAAP financial statements while also publishing non-GAAP management reports for internal stakeholders.

But more than anything, providing this level of transparency and insight is a data-wrangling challenge. Teams stuck in manual reporting cycles barely have enough time to get the GAAP statements out the door, let alone set the stage for FP&A counterparts to go deeper on the numbers.

Mosaic solves these data-wrangling challenges by integrating with your critical source systems and providing visibility into your actuals in real time. This gives accounting and finance teams more time to collaborate on custom financial reports that highlight the true narrative of business performance.

If you want to see how Mosaic’s automated financial reporting works and what it can do for your team, reach out for a personalized demo.

Learn More About SaaS Accounting

How to Use AI to Optimize Accounting Processes

GAAP Financial Statement FAQs

How many rules are there in GAAP?

There are more than 800 standards from the Financail Accounting Standards Board (FASB) that adhere to GAAP rules. However, there are 10 basic GAAP principles that each of those rules follows. They are the principles of:

  • Regularity
  • Consistency
  • Sincerity
  • Permanence
  • Non-Compensation
  • Prudence
  • Continuity
  • Periodicity
  • Materiality
  • Good Faith

Does GAAP require a balance sheet?

Yes, the balance sheet is one of four GAAP-required financial statements, alongside the income statement, statement of cash flows, and statement of shareholder equity.

What is the difference between a GAAP and IFRS balance sheet?

Because IFRS is more flexible than GAAP, balance sheets may differ in a few key ways under the two standards, including:

  • Starting with current assets under GAAP, but non-current assets under IFRS
  • Adding more disclosures under GAAP than under IFRS
  • Ordering accounts from most to least liquidity under GAAP and the opposite under IFRS
  • Using a last-in, first-out (LIFO) approach under GAAP, which isn’t allowed by IFRS
Guide to GAAP Accounting Principles in SaaS Businesses (2024)


What is GAAP in SaaS? ›

Revenue Recognition for SaaS. Revenue recognition is one of the principles of the Generally Accepted Accounting Principles (GAAP US). It provides the condition under which revenue is recognized and a way to account for it in the financial statements.

What are the 12 GAAP principles with examples? ›

12 basic principles of accounting
  • Accrual principle. ...
  • Conservatism principle. ...
  • Consistency principle. ...
  • Cost principle. ...
  • Economic entity principle. ...
  • Full disclosure principle. ...
  • Going concern principle. ...
  • Matching principle.
Feb 3, 2023

What is SaaS experience in accounting? ›

Accounting for SaaS companies requires industry knowledge, including how to recognize revenue and account for deferred revenue from customer contracts and record cost of goods sold and business expenses, including state and local taxes, if applicable for in-state and out-of-home-state jurisdictions.

What is the financial statement of SaaS company? ›

A SaaS income statement, also known as a Profit and Loss (P&L) statement, is an essential financial document. It meticulously details your company's revenue and expenditures over a specific period, whether monthly, quarterly, or annually, offering a clear picture of financial performance.

Should SaaS be capitalized? ›

“SaaS” or “Software as a Service” is the correct recognized way of capitalizing, due to the focus on meaningful words and leaving behind the things leading to then. In programming, this is a common practice.

Are subscription fees capitalized or expensed? ›

Generally, the subscription fees for such types of software arrangements are expensed over the term of the contract and are not capitalized.

Where can I find GAAP principles? ›

The FASB Accounting Standards Codification® is the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP).

What is the most important GAAP principle? ›

The objectivity principle is one of the most important constraints under generally accepted accounting principles. According to the objectivity principle, GAAP-compliant financial statements provided by your accountant must be based on objective evidence.

What is the difference between GAAP and accounting principles? ›

The main distinction appears in their overall organization. U.S. GAAP prioritizes rules and detailed guidelines, while the IFRS provides general principles to follow.

What is the principle of SaaS accounting? ›

SaaS revenue recognition is a principle that determines the period when payment (cash) by clients is recognized as revenue in financial statements. The pre-payments made by clients before service delivery are treated as deferred revenue, and hence, a liability.

What is the SaaS accounting method? ›

Deciphering the Types of SaaS Accounting Methods

SaaS companies have two main accounting methods: cash-basis accounting and accrual accounting. Cash-basis accounting records transactions when cash is exchanged, while accrual accounting recognises revenue when earned, regardless of payment timing.

What is SaaS based accounting? ›

SaaS accounting is a model for accounting software whereby the application is hosted by a service provider. Instead of installing and maintaining software locally, SaaS software is securely accessed through a PC or mobile device. Also known as “cloud accounting software“.

What is the P&L of SaaS? ›

What Is a P&L Statement in SaaS? Revenue: How much money the company is making, a.k.a the top line of your SaaS income statement. Expenses: How much money the business is spending to make money. Net Income: Everything that's left over when you subtract expenses from revenue, a.k.a the bottom line of the statement.

What is the difference between GAAP and SaaS? ›

Your SaaS metrics tell you where your business is going. They tell you all about your growth and your momentum. But GAAP metrics tell you where you are now. How well you're delivering your service, and whether you have a solid foundation on which to build your growth machine.

How do you record SaaS revenue? ›

Recording revenue for SaaS involves identifying the contract with the customer, determining the transaction price, identifying the performance obligations, allocating the transaction price to the performance obligations, and recognizing revenue as the performance obligations are met.

What is the meaning of GAAP software? ›

Generally accepted accounting principles, or GAAP, are standards that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices.

How do you define GAAP? ›

GAAP (generally accepted accounting principles) is a collection of commonly followed accounting rules and standards for financial reporting.

What is the GAAP system? ›

The generally accepted accounting principles (GAAP) are a set of accounting rules, standards, and procedures issued and frequently revised by the Financial Accounting Standards Board (FASB). Public companies in the U.S. must follow GAAP when their accountants compile their financial statements.

What is the difference between GAAP and arr? ›

GAAP revenue, which follows a uniform set of rules from the Financial Accounting Standards Board (FASB), measures recognized revenue for the amount of time that the service has been delivered. ARR, on the other hand, measures your recurring revenue.

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