How Wholesale Distributors Apply GAAP in Financial, Sales, and Operations

Posted By  |  April 20, 2016


Have you ever wondered how wholesale distributors apply GAAP, otherwise known as Generally Accepted Accounting Principles? If you’re in the wholesale distribution business, it’s essential that your accounting department understands GAAP. It’s mandated to use these principles on financial reports within all publicly traded companies.

The reason for the mandate is because of a history where companies once misled the public with their own financial records. Many historians attribute The Great Depression to faulty financial reporting practices.

With other shady financial track records of companies in more recent history, you can see why GAAP is necessary. In the wholesale distribution industry, it’s just as essential to keeping your business more integrated for public trust. In financial, sales and general operations, using GAAP can bring a better level of transparency to your customers.

What tactics should you use to make GAAP work in your distribution business? You can follow GAAP’s basic tenets to help you get there.

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Bringing consistency to each department

One essential principle in successfully using GAAP is being consistent across all departments. Much of this occurs through the reporting process in your financial, sales and general operation areas. In many cases, this means ensuring your data from each department is integrated or available in one system, so each part of your distribution center knows what the other is doing.

Being consistent helps prevent errors that are bound to happen when doing different tasks at once. Your accountants from the financial department need to disclose reasons why they’ve changed or updated any standards so your investors and creditors easily understand the information.

Bringing accuracy to financial records

It is very important to give out financial figures that are honest and accurate. Accountants could potentially fudge facts about your financial condition, but the more honest, the better. Lacking honesty and sincerity hurts more than just your company – it can destroy faith in the businesses who rely on your distribution center to efficiently ship their products to customers.

When your accountants tell the truth, it can lead to honest answers and quicker solutions rather than pretending nothing is wrong.

Fact-based financial data

It’s possible that your accountants and sales team could make financial estimations based on speculations. GAAP principles emphasize prudence in emphasizing fact-based financial data not clouded by what outsiders say.

You have to look at your own situation rather than looking at the entirety of the distribution industry since your financial situation is possibly unique. Some of this can depend on which industries you cater to in your company.

Continuity principles

Another important GAAP element is continuity and making the assumption that your business will continue to operate, despite financial data. Continuity prevents panic or low morale in employees and is important to keep your business going.

It’s a sound principle since it keeps people motivated and opens doors for your distribution company to succeed, even if you’re having financial issues. As we’ve all seen, negative speculations can lead to severe problems and a domino effect of difficulties.

Honesty in all transactions

Many departments have to make transactions to acquire assets for your distribution business. GAAP gives guidelines for all parties to be honest in transactions, so it doesn’t lead to discrepancies down the road.

Not reporting all acquired assets can also affect your tax write-offs for the year. It’s why having a good financial software system in place can get internal records in place so they don’t get lost or have errors.

Aplicor provides companies with an embedded, cloud-based system that integrates ERP, CRM, WMS and e-commerce functionality to help bring all GAAP principles together.Contact us to find out more about features and how it can help your wholesale distribution company.