Outsourced Accounting in the US: A Guide

One of the major challenges that small businesses face is the lack of professional staff. This challenge becomes even more pronounced when doing business in a foreign country like the U.S., where local laws, standards, and best practices are often unfamiliar. The search for a reliable accountant who can manage your company’s finances can be difficult. That's why

What is outsourced accounting?

Outsourced accounting is the practice of hiring a third party (either an individual or a company) outside of your state or country to handle accounting functions. This can range from bookkeeping and payroll processing to financial reporting and tax preparation. Outsourced accountants perform the same tasks as in-house accountants but often offer the flexibility of scaling services according to business needs.

For example, larger companies may need specific accountants for payroll, inventory, and financial reporting, while small businesses may only require a single individual to manage these aspects. Outsourcing is an ideal solution for businesses seeking to save time, money, and effort.

Benefits of outsourced accounting for US-based businesses

Outsourcing accounting services offers numerous advantages, especially for foreign entrepreneurs operating in the U.S. Below are some of the key benefits:

Cost savings
By outsourcing, you eliminate the need to hire and train in-house staff, saving on salaries, benefits, and overhead costs.

Access to expertise
Outsourcing gives you access to experienced accounting professionals who are well-versed in U.S. accounting laws, regulations, and industry best practices.

Scalability
Your accounting needs may change as your business grows. Outsourcing allows you to easily adjust the services you receive, adding more resources as required.

Compliance and accuracy
Outsourcing firms ensure your business remains compliant with U.S. financial regulations, mitigating the risk of errors, penalties, and fines.

The role of accounting firms in the US

Outsourcing your accounting functions to a professional firm in the U.S. can provide comprehensive support, including:

• Document collection & processing: managing invoices, receipts, and other payment documentation.
• Setting up financial systems: creating a transparent accounting system tailored to your business needs.
• Tax preparation & filing: preparing and submitting all required tax returns.
• Financial reporting & auditing: producing periodic financial statements and ensuring compliance with federal and state laws.
• Compliance & legal assurance: providing expert guidance on maintaining U.S. standards like Generally Accepted Accounting Principles (GAAP).

An essential advantage of partnering with a U.S.-based accounting firm is that they assume full responsibility for the financial services they provide. Should there be any errors or delays in filing, the firm is accountable for rectifying them.

Understanding US accounting standards (GAAP)

The U.S. accounting landscape is governed by a set of standards called GAAP (Generally Accepted Accounting Principles). GAAP establishes the rules for recording and reporting financial transactions and is regulated by the Financial Accounting Standards Board (FASB).

GAAP differs significantly from International Financial Reporting Standards (IFRS) used in many countries. Its purpose is to ensure that financial statements are complete, consistent, and comparable across companies. Here are some notable differences between GAAP and IFRS:

GAAP	IFRS
Requires the separation of current and non-current debt.	Certain violations of debt obligations may be categorized as long-term.
Recognizes intangible assets at fair value.	Only recognizes intangible assets if they are linked to future benefits.
Does not require classification of expenses by function or nature.	Requires documentation of expenses by function or nature.
Inventory write-downs are not permitted.	Allows inventory write-downs in specific cases.
Extraordinary items are reported separately.	Included in other items of the profit and loss statement.

While GAAP is not mandatory for private companies, financial institutions often require GAAP-compliant statements when issuing business loans.

Primary accounting in the US: an overview

General ledger (GL)
The GL is a core document in U.S. accounting that records every business transaction. Transactions are categorized by asset type, liabilities, equity, income, and expenses. Proper management of the GL ensures accurate financial statements like the balance sheet and profit and loss statement.

Balance sheet
The balance sheet offers a snapshot of a company’s financial status at a given point, listing assets, liabilities, and shareholder equity. It's crucial to balance the two sides; assets should always equal liabilities and equity. Imbalances could indicate errors or misstatements in the data.

Profit and loss statement (P&L)
Also known as the income statement, this document summarizes revenues, costs, profits, and losses over a period of time (monthly, quarterly, or annually). Comparing P&L statements over time helps identify trends and provides insights into a company's performance.

US federal financial reporting requirements

Form 1040 (Single-Member LLCs)
For LLCs owned by a single person, Form 1040 is typically used to report income, expenses, and business profits. Supplementary schedules like Schedule C (for reporting business income and losses) may also be required.

Form 1065 (Multi-Member LLCs)
For partnerships or LLCs with multiple owners, Form 1065 is filed to report business income, deductions, and profits. This form is necessary to produce Schedule K-1s for each partner, detailing their share of income and expenses.

Form 1120 (C-Corps & S-Corps)
Corporations or LLCs taxed as corporations must file Form 1120 to report income, gains, losses, deductions, and credits. C-corporations use Form 1120, while S-corporations use Form 1120-S.

State-level reporting obligations

Tax regulations can vary greatly by state, with different requirements for filing, timing, and reporting. All companies registered in a state must file an Annual Tax Report, maintaining active status. These reports provide basic information about the company and can differ in format and requirements from state to state.

Key State Requirement: Annual Tax Report
All LLCs and corporations must file an annual tax report (or equivalent) to maintain compliance. The report often includes details like legal company name, address, registered agent, and details of directors or officers. In some states, this is called an “Information Statement” or “Periodic Report."

Final Thoughts

Accounting in the U.S. is complex, especially for foreign entrepreneurs unfamiliar with federal and state regulations. However, partnering with an experienced accounting firm helps ensure accurate financial reporting, compliance with GAAP, and efficient operations. By outsourcing your accounting needs, you can focus on growing your business while leaving the financial complexities to the experts.

If you need assistance with US accounting standards and tax regulations, our team is here to help. Get in touch for a consultation and let our experts handle your financial reporting and compliance needs effectively.