GAAP for RIAs: What Does GAAP Look Like For Me?

Let’s be honest, GAAP (Generally Accepted Accounting Principles) accounting isn’t exactly party conversation material (unless your guest list is 100% bookkeepers... in which case, carry on). However, for RIAs, it's a topic that arises repeatedly, and for good reason. Whether you're launching your firm, managing custody, or prepping for growth or acquisition, GAAP is the foundation of clear, audit-ready financials, and it’s what regulators expect.

While the SEC doesn’t explicitly require GAAP unless certain criteria are met, it is often considered the best choice for financials as your firm grows. In fact, over 90% of U.S. states require RIAs to follow GAAP, and the trend is moving toward universal adoption, especially for firms with custody of client assets or plans to scale.

The 10 Core Principles of GAAP

To understand GAAP, it helps to start with its foundation: the ten key principles that guide how financial information should be recorded and reported:

1. Economic Entity Assumption – Business and personal transactions must be kept separate.
2. Monetary Unit Assumption – Financials are recorded in a consistent currency (e.g., U.S. dollars).
3. Time Period Assumption – Financial reporting is broken into standard, regular time periods (monthly, quarterly, annually).
4. Cost Principle – Assets are recorded at their original cost, not current market value.
5. Full Disclosure Principle – All relevant financial info must be disclosed in the financial statements or notes.
6. Going Concern Principle – Assumes the business will continue operating indefinitely unless proven otherwise.
7. Matching Principle – Expenses must be recorded in the same period as the revenues they help generate.
8. Revenue Recognition Principle – Revenue is recognized when earned, not when cash is received.
9. Materiality Principle – Financial reports should include all items that could influence decision-making, but minor details may be excluded.
10. Conservatism Principle – When in doubt, err on the side of understating assets or income rather than overstating them.

These principles aren’t just accounting theory; they shape how your books are built, how regulators assess your firm, and how you plan for sustainable growth. In the sections that follow, we’ll highlight how a few of these principles, particularly revenue and expense recognition, play a major role in running a clean, compliant RIA.

In this guide, we’ll take a deeper dive into two of the most relevant principles for RIAs: Revenue Recognition and Matching, the core concepts that determine when income and expenses hit your books, and how to keep everything GAAP-compliant.

Core GAAP Principles for RIAs

Revenue Recognition

*In practice, regulators typically place less scrutiny on income recorded in arrears.

Expense Recognition (Matching Principle)

Top 4 GAAP Journal Entries for RIAs

1. Prepaid Expenses

When you prepay*: *Skip this step if you categorize the initial transaction to Prepaid Expense*

Debit: Prepaid Expense | $1,200  
Credit: Expense | $1,200 

Monthly entry to recognize the expense:

Debit: Expense | $100  
Credit: Prepaid Expense | $100

2. Deferred Revenue (Unearned Income)

When the client pays in advance*: *Skip this step if you categorize the initial transaction to Deferred Revenue*

Debit: Revenue | $1,200  
Credit: Deferred Revenue | $1,200

Monthly recognition of earned revenue:

Debit: Deferred Revenue | $100  
Credit: Revenue | $100

3. Depreciation / Amortization

End-of-period entry to record depreciation/amortization:

Debit: Depreciation Expense | $1,200  
Credit: Accumulated Depreciation | $1,200

Reminder: GAAP ≠ Tax Accounting

Just because something is deductible on your tax return doesn’t mean it qualifies for amortization or depreciation under GAAP. Know the difference, and keep your reporting aligned with each standard.

For example, certain expenses may be immediately deductible for tax purposes but must be capitalized and amortized over time for GAAP financial statements.

Maintaining this distinction helps ensure accurate financial reporting and compliance with accounting regulations.