Common GAAP Adjustments to Make Before Your Audit

Most small and mid-sized companies run their books on a hybrid of cash and accrual habits. That works fine for day-to-day operations, but it produces a predictable set of GAAP adjustments at audit time. Catching them yourself — before the auditor does — is the difference between a smooth engagement and a list of proposed adjusting entries you have to scramble to support.

Here are the adjustments that come up again and again, and how to handle each.

1. Cutoff errors

Cutoff is about recording transactions in the correct period. A December invoice booked in January, or a shipment recognized before the goods left the dock, distorts both periods. Auditors test cutoff aggressively around the period end because it is one of the easiest places to overstate or understate results.

Fix: Review the last and first two weeks of revenue and major expenses around your year end. Confirm that each item lands in the period when the performance obligation was satisfied or the expense was incurred.

2. Missing accruals

Accrual accounting requires you to record expenses when incurred, not when paid. The usual suspects:

• Unpaid wages and payroll taxes through period end
• Accrued bonuses and commissions
• Utilities, professional fees, and other invoices received after close
• Interest accrued but not yet paid

Fix: Build a recurring accrual checklist tied to your close. Estimate amounts from the most recent invoice or contract, and reverse the accrual in the following period.

3. Prepaid expenses booked as expense

When you pay an annual insurance premium or software subscription up front, GAAP requires you to capitalize the prepaid portion and amortize it over the benefit period. Companies frequently expense the whole payment immediately.

Fix: Identify large payments that cover future periods, set up a prepaid asset, and amortize on a schedule that matches the coverage term.

4. Fixed assets and depreciation

Two common issues: expensing items that should be capitalized (and vice versa), and depreciation that does not match a defensible policy. Auditors will ask for a fixed-asset roll-forward — beginning balance, additions, disposals, ending balance, and accumulated depreciation.

Fix: Apply a consistent capitalization threshold, document useful lives, and maintain a roll-forward that ties to the general ledger.

5. Debt classification

The current versus long-term split on debt is a classic restatement trigger. The portion of a loan due within twelve months belongs in current liabilities; the rest is long-term. Covenant violations can also force an otherwise long-term balance into current.

Fix: Pull each loan's amortization schedule, split the next twelve months of principal into current, and confirm covenant compliance at the balance-sheet date.

6. Revenue recognition (ASC 606)

If you have contracts with multiple deliverables, variable consideration, or upfront payments, your revenue timing may not match GAAP. Deferred revenue is a frequent adjustment for subscription and service businesses.

Fix: Identify performance obligations, allocate the transaction price, and recognize revenue as obligations are satisfied. Park amounts billed but not yet earned in deferred revenue.

7. Leases (ASC 842)

Operating leases now sit on the balance sheet as a right-of-use asset and a lease liability. Many QuickBooks-based companies still treat them as a simple rent expense.

Fix: Inventory your leases, calculate the present value of remaining payments, and record the asset and liability with the appropriate amortization.

Catching these before fieldwork

The pattern across all seven is the same: GAAP requires matching, classification, and timing that everyday bookkeeping does not enforce. The earlier you find the gaps, the more time you have to support each adjustment with a schedule.

LedgerProof runs a library of GAAP-oriented review procedures across your QuickBooks Online data and flags likely adjustments in exactly these areas — cutoff, accruals, prepaids, depreciation, debt classification, ASC 606, and ASC 842 — then drafts suggested adjusting entries with rationale for your review. It never posts anything on its own; suggested entries are export-only unless you explicitly, and with a logged confirmation, opt in to write one back.

One caveat worth repeating: LedgerProof is a preparation aid, not an audit, an assurance engagement, or a GAAP-conformity opinion, and it is not a substitute for a CPA or auditor. Findings are heuristic, can include false positives, and require your professional judgment before you rely on or act on them.

The takeaway

These adjustments are predictable, which means they are preventable. Build them into your close process, support each one with a schedule, and you turn audit fieldwork into a review of work you have already done — not a discovery of work you missed.