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Accounting & Taxes

Do you recommend cash basis accounting for Fund I, II, and III?

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Dec 21, 2023
If so, why? If not, why not? Do you recommend cash basis accounting for operations but also having accrual in your data room for future limited partners that require reporting on GAAP standards?
My current understanding is that accrual is the preferred means by institutional investors for GAAP purposes. However, in doing so early on in a Fund Series' life, there might be mistakes made until proper controls are put in place and so operating on a cash basis is more effective and reliable from an operating performance perspective. My understanding is also that managers typically desire accrual so that they can claim lines of credit against future income (instead of having to rely on only what is real which would be accounted for on a cash basis). My proposal is to operate on a cash basis and if an LP requests accrual then they have to pay for that work to be performed. My updated proposal is to operate and report taxes on a cash basis while also keeping documentation on an accrual basis for data room/diligence purposes but not send this to tax/accounting so as to keep fees low while the fund is just starting out. By doing so, the GP can report accurately to their LPs while also delivering on GAAP standards to future potential LPs when so requested. Please correct any of my misunderstandings. Thank you in advance.
Dec 21, 2023 8:00am
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