...Basic Accounting Concepts Vai Ma’ake University of Idaho Financial Accounting ACCP/537 March 19, 2011 Introduction To identify and describe the sources of generally accepted accounting principles (GAAP). Also identify the source hierarchy and explain why the hierarchy is important. Describe effective accounting information using the qualities of accounting information and how an accrual basis of accounting system is different from a cash basis of accounting. Finally, describing the different types of business structures and the defining features of each structure (University of Phoenix Syllabus, 2011). Basic accounting concepts In successfully running and operating a business, business structure and basic accounting concepts must be present to operate well. The generally accepted accounting principles also known as the (GAAP) set standards to the financial statements. The standards set by the GAAP must also include effective accounting information. Companies do have the option either to use accrual basis of accounting or cash basis of accounting. However, under the GAAP it does accept cash basis accounting. Companies will determine the type of business to do business in. However, these decisions do makes the difference in how successful a company is. [pic]GAAP The GAAP are standards, which are universally practiced and generally accepted in accounting. These standards and rules are for accountants to use in compiling...
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...Basic Accounting Concepts and Business Structures David Lickem ACC/537 April 15, 2013 Basic Accounting Concepts and Business Structures The accounting profession as a whole is extremely complex and ripe with regulations and rules. It is also enormously important to any organization, big or small, and thus can be a very intimidating career choice. As with anything else though, reaching a destination requires a starting point, and in accounting, a good starting point is to understand basic accounting concepts and business structures. These basic accounting concepts include but are not limited to the Generally Accepted Accounting Principles, the qualities of effective accounting information, and the differences between accrual based accounting and cash based accounting. The different types of business structure are also an important concept in understanding the basics of accounting. Generally Accepted Accounting Principles: Sources and Hierarchy The stock market crash of 1929, which led to the Great Depression, resulted in a demand for more government regulation in financial institutions and the stock market. The Securities and Exchange Commission (SEC) was established with the goal of developing and standardizing financial information presented to stockholders, and since then the SEC has worked alongside several private organizations to develop the Generally Accepted Accounting Principles (GAAP) Sources of GAAP The American Institute of Certified Public Accountants...
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...Basic Accounting Concepts and Business Structures Basic Accounting Concepts and Business Structures The accounting environment is constantly changing to improve so decision-making in the business world will thrive. To be successful in a business, understanding the fundamental concepts are essential to make informed decisions. The federal government formed the SEC to standardize financial information and to keep the financial environment regulated. In the following sections the basic concepts of accounting will be addressed along with the three business structures. Generally Accepted Accounting Principles The framework of guidelines on standards and rules for financial accounting are referred to as the generally accepted accounting principles (GAAP). The American Institute of Certified Public Accountants (AICPA) issued the hierarchy of generally accepted accounting principles as an auditing standard. It has four categories ranging from most authoritative, Category A to least authoritative, Category D. The major sources are FASB Standards, Interpretations, and Staff Positions, along with the ABP Opinions, and AICPA Accounting Research Bulletins. The hierarchy is important because there are times when these sources do not provide the guidance needed by companies. When a company is looking for guidance and there is conflicting information, the company should always refer to the pronouncements in the higher...
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...Basic Accounting Concepts and Business Structures Accounting is referred to by many as the language of business. Accounting is used throughout the business world and around the globe. Business accounting starts with (GAAP) which stands for Generally Accepted Accounting Principles; “These are guidelines or, more precisely, a group of objectives and conventions that have evolved over time to govern how financial statements are prepared and presented” ("What Are Generally Accepted Accounting Principles? | Government Bodies & Offices from AllBusiness.com," 2010). Those who report financial statement information must be aware of GAAP. The Federal Accounting Standards Advisory Board (FASAB) is responsible for establishing and maintaining GAAP. GAAP Hierarchy The hierarchy of GAAP is broken into four categories consisting of A, B, C and D. Category A holds the most authority. This category establishes the principles set forth by the Federal Accounting Standards Advisory Board (FASAB). Category B consists of technical bulletins, audit and accounting guidelines which adhere to the American Institute of CPA’s standards and are cleared by the FASAB. The C category consists of “technical releases from the Accounting and Auditing Policy Committee of the FASAB” ("Generally Accepted Accounting Principles," n.d.). The last category is D; this category consists of implementing guides which are published by the FASAB. These guides also provide practices which are common and...
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...Financial Accounting Basic Accounting Concepts and Business Structures Executive Summary Most businesses nowadays either sole proprietorship, partnership or corporation should prepare financial statements in accordance with the Generally Accepted Accounting Principles (GAAP). Financial statements are the major source of financial information that would help management, creditors, and investors in their decision making. Financial reporting is one of the responsibilities of the company in communicating financial information, which guides in investment and credit decisions, assessing cash flow prospects, and about company’s resources, and claims to its resources. Accrual and cash basis of accounting are the methods employed in recording financial transactions, which affect the credibility of its financial information. Generally Accepted Accounting Principles Generally Accepted Accounting Principle (GAAP) is a helpful guide in financial reporting. For the past half a century, less than 50% of the GAAP issued are still effective today. These were reviewed and revised in accordance to the investors, and creditors information needs (Fisher, 1998). GAAP are set of standards and procedures that have substantial authoritative support. The organizations responsible in its development are the Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB) and Government Accounting Standards...
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...Explaining Basic Concepts and Business Structures Kristin Elam ACC/537 March 24th, 2014 Rebecca Kime Topic 1: Identify and describe the sources of GAAP. Identify source hierarchy and why it is important. “Although principles and practices continue to provoke both debate and criticism, most members of the financial community recognize them as the standards that over time have proven to be most useful.” (Keiso, et all, 2007, (2007). Financial Accounting, Ch. 1). Defining standards for financial reporting is critical to creating a financial playing field that enables us to to evaluate and make sound business decisions as individuals, companies, a nation, and global economy. The major sources of influence that define the guidelines of generally accepted accounting principles (GAAP) are Financial Accounting Standards Board (FASB) Interpretations, and their Staff Positions; Accounting Principles Board (APB) Opinions, and American Institute of Certified Public Accountants' (AICPA). The guidelines followed in the financial industry begin with the most authoritative source, defined as the “GAAP hierarchy”. At the top are FAS statements and AICPA opinions, FASB staff questions and answers and AICPA interpretations. If decisions and information can’t be ascertained by these sources, common practices, opinions, and other publications would fall on the bottom resources of the hierarchy. (Keiso, et all, 2007) Topic 2: Describe effective...
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...Basic Accounting Concepts and Business Structures ACC/537 August 13, 2012 Sources of GAAP and Source Hierarchy According to our textbook Financial Accounting, “General Accepted accounting principles (GAAP) have substantial authoritative support. The American Institute of Certified Public Accountants (AICPA’s) code of professional conduct requires that members prepare financial statements in accordance with GAAP. Specifically rule 203 of this code prohibits a member from expressing an unqualified opinion for financial statements that contain a material departure from general accepted accounting principles” (Kimmel, Weygandt & Kieso, 2007, p. 12). According to (Kieso, Weygandt, & Warfield, 2007), General Accepted Principles (GAAP) are an established common set of accepted accounting principles procedures, and standards made over time by the AICPA, a national professional organization of practicing Certified Public Accountants (CPA’s). Because of the industrial growth, its capital markets and after the great depression of 1929, the federal government established the Security and Exchange Commission (SEC) to protect stockholders investments. However, the SEC discovered that many non-public trade organizations did not fall under their security laws and their jurisdiction and they developed a two part sectors, AICPA, and the Financial Accounting Standard Board (FASB) to establish, and improve accounting standards and principles. The FASB is working on a standard that defines...
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...Basic Accounting Concepts and Business Structures Karen Miersma ACC/537 July 14, 2012 Professor James Neuner Basic Accounting Concepts and Business Structures One of the first things looked at when studying accounting concepts and business structures is GAAP (generally accepted accounting principles). There is a hierarchy that accountants use when exploring “substantial authoritative support” (Kieso, Weygandt, & Warfield, 2007, Chapter 1, Financial Accounting and Accounting Standards) in their accounting practices. This hierarchy provides the framework needed to prepare company financial statements. This hierarchy is very important because it is the company’s responsibility to select the accounting principles for their financial statements and the company needs to be in compliance with GAAP. Hierarchy Here are four main categories in this hierarchy. The first is the most authoritative, etc. 1. FASB Standards; APB Opinions; AICPA Research Bulletins. 2. FASB Bulletins; AICPA Accounting and Audit Guides; AICPA Statements. 3. FASB Emerging Issues Task Force; AICPA AcSEC Bulletins. 4. AICPA Interpretations; FASB Implementations; Widely Recognized and Prevalent Industry Practices1. Descriptions The federal government established the SEC (Securities and Exchange Commission) to help regulate, standardize, and develop the financial information the stockholders receive (Kieso, Weygandt, & Warfield, Chapter 1, Financial Accounting and Accounting Standards, 2007). The...
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...MANAGERIAL ACCOUNTING Based on Management Accounting by Robert N. Anthony Nearly every business enterprise has an accounting system, that is, a means of collecting, summarizing, analyzing, and reporting, in monetary terms, information about the business. In studying these systems, it is useful to consider them as consisting of two parts that are labeled financial accounting and managerial accounting, although in practice the two are not neatly separated. Financial accounting has the primary objective of providing financial information to parties outside the business — stockholders, bankers, other creditors, and government agencies. The techniques, rules, and conventions according to which financial accounting figures are collected and reported reflect, to a considerable extent, the requirements of these outside parties. Managerial accounting is concerned with accounting information that is useful to management. Although much of this information is the same as that contained in reports for outsiders, management also needs a considerable amount of addi-tional information. “Useful” always connotes some purpose for which the figures are to be used. The concern is with the use of accounting figures in the identification, recognition, or solution of management problems. The terms “financial accounting” and “managerial accounting” are not precise descriptions of the activities they comprise. All accounting is financial in the sense that all accounting systems are...
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...Explaining Basic Accounting Concepts and Business Structures ACT/537 January 9, 2012 Explaining Basic Accounting Concepts and Business Structures A solid understanding of basic accounting is arguably one of the most essential skills future businesses leaders require for success. The business world operates to make a profit, and in order to do so, managers must understand the numbers. Managers from marketing, production, management, or information systems should each understand fundamentals of accounting and business structures to be more effective in their respective departments (Kimmel, Weygandt, & Kieso, 2007). In an effort to help facilitate this understanding the following paper will attempt to identify and describe sources of generally accepted accounting principles, (GAAP) with a highlight on why hierarchy is important, describe effective accounting information using the qualities of accounting information, describe how an accrual based accounting system is different from a cash basis of accounting, and describe types of business structures and the defining features of each structure. Sources of GAAP An essential accounting concept business managers should understand is the hierarchy of the GAAP. GAAP are common accounting procedures that organizations use to prepare their financial statements. The standards outlined by the GAAP are the basis for accounting in the United States (Pounder, 2011). It is essential managers understand the GAAP hierarchy...
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...Running Head: Basic Accounting Concepts and Business Structures Basic Accounting Concepts and Business Structures Jeremy Keturi University of Phoenix 03/10/2011 ACC/537 Accounting has multiple forms and concepts depending on the type of business. This paper is going to identify the sources of generally accepted accounting principles; and identify the source of hierarchy with an explanation of why the hierarchy is important. This paper will describe effective accounting, along with the difference between accrual-based accounting from cash basis accounting. The last item discussed will be three business types, structure and their features. “The sources of generally accepted accounting principles (GAAP) are financial accounting standards board (FASB Standards), interpretations, and staff positions, accounting principles board (APB Opinions), and American institute of certified public accountants (AICPA)” (Kieso, Weygandt, & Warfield, 2007). [“The financial accountant standards board (FASB) is the source of the Hierarchy. The Hierarchy of generally accepted accounting principles is a standard that the FASB is working. What the Hierarchy does, it identifies the source of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements”] (Kieso, Weygandt, & Warfield, 2007). Effective accounting is completeness, relevance, accuracy, clarity, properly communicated, timely, and cost efficient. Completeness...
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...Basic Accounting Concepts and Business Structures Chris Walters ACC 537 May 9, 2011 James T Neuner Basic Accounting Concepts and Business Structures Sources of GAAP and Hierarchy The main sources of GAAP fall into four main categories; A, B, C, and D, with category A as the most authoritative, then B, C, and the least authoritative being D. Category A includes FASB Standards, Interpretations, and Staff Positions, APB Opinions, and AICPA Accounting Research Bulletin Category B contains FASB Technical Bulletins, which are no longer issued, AICPA Industry Audit and Accounting Guidelines, and AICPA Statements of Position. Category C incompasses FASB Emerging Issues Task Force and AICPA AcSEC Practice bullitens. Category D consists of AICPA Accounting Interpretations, FASB Implementation Guides, and widely recognized and prevalent industry practices. All of these comprise to make the “House of GAAP” (Kieso, D., Weygandt, J., & Warfield, T., p. 12) that provides hierarchy and guidance for businesses in determining the correct course of action with accounting issues. Qualities of Effective Accounting Information The two primary qualities of effective accounting information needed by financial statement users are relevance and reliability. Accounting information is relevant when it assist users in making an informed decision, and has a predictive value on events, feedback value on prior expectations, and timeliness. Accounting information has reliability when...
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...Basic Accounting Concepts and Business Structures Different types of businesses use different accounting methods, small businesses tend to use the cash-basis of accounting, whereas the accrual method is a requirement for large business with revenue more than 5 million. Uniformity of accounting information is important when making decisions for or about a business. A hierarchy of sources provides structure for the generally accepted accounting principles (GAAP). Along with the hierarchy of sources, the Financial Accounting Standards Board (FASB) identify qualitative characteristics to distinguish between useful and inferior information and to ensure accounting information assists in decision making. Qualities of Accounting Information There are internal and external users of accounting information for decision-making. Internal users are managers within a company that use the information to plan, organize, and run the business, “These include marketing managers, production supervisors, finance directors, and company officers” (Kimmel, Weygandt, & Kieso, p. 6, 2007). External users can be investors, “make decisions to buy, hold, or sell stock,” creditors, “suppliers and bankers use accounting information to evaluate the risks of granting credit or lending money” (Kimmel, Weygandt, & Kieso, p. 6, 2007). External users also include taxing authorities, customers, labor unions, and regulatory agencies. For decision makers to make decisions using the information, they have...
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...BASIC ACCOUNTING CONCEPTS AND BUSINESS STRUCTURES Derwin N. Johnson ACC/537 OCTOBER 6, 2014 MR. JAMES NEUNER BASIC ACCOUNTING CONCEPTS AND BUSINESS STRUCTURES This paper will discuss the basic accounting concepts and business structures used in today’s business practices. In this paper I will discuss four topics. I. Identify and describe the sources of G.A.A.P. and identify the sources and explain the importance of the hierarchy. II. Describe effective accounting information using the qualities of accounting information . III. Describe how an accrual based and cash basis of accounting differ IV. Describe the types of business structures and the defining features of each structure. When referring to G.A.A.P., (Generally Accepted Accounting Principles), one must identify the sources of GAAP which are the S.E.C., (Securities and Exchange Commission), A.I.C.P.A., (American Institute of Certified Public Accountants), F.A.S.B., (Financial Accounting Standards Board), G.A.S.B., (Government Accounting Standards Board). The S.E.C. was created after the Great Depression of 1929 to increase governmental regulation to the financial community. The A.I.C.P.A. and F.A.S.B. were created with the encouragement of the S.E.C. to have the private and public accounting sector to help establish accounting standards. G.A.S.B. was created to oversee the accounting standards of state, local, and municipal governments, which differ from those of the private sector. The...
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...Basic Accounting Concepts and Business Structures Danny Silvio ACC/537 10/10/11 Professor Basic Accounting Concepts and Business Structures Generally Accepted Accounting Principles The sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements are prepared by the Financial Accounting Standards Board (FASB). The standard categorizes the major sources of GAAP as being FASB Standards, Interpretations and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins (Kiesco, Weygandt, & Warfield, Chap. 1, 2007). Chapter one describes this bottom portion of the hierarchy of GAAP as Category (A), being the most authoritative. When a specific accounting transaction occurs that these documents do not cover, companies go to the next level, which according to Kiesco, Weygandt, and Warfield’s (2007) illustration are Category B being FASB Technical Bulletins (which are no longer issued); AICPA Industry Audit and Accounting Guides; and AICPA Statements of Position. Although there is no single reference source for GAAP, there is a hierarchy established by the AICPA. At the foundation of that hierarchy are the principles established by the FASB and its predecessors, the APB and the AICPA Committee on Accounting Procedure. From that foundation, the hierarchy formulates a "pecking order" for all the rules and procedures that are incorporated in the preparation...
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