...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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...Explaining Basic Accounting Concepts and Business Structures ACC/537 Dec, 5, 2011 Explaining Basic Accounting Concepts and Business Structures The purpose of the paper is to explain basic accounting concepts and business structures. This paper covers four topics, which include the following: 1. Identify and describe the sources of generally accepted accounting principles (GAAP). 2. Describe effective accounting information using the qualities of accounting information. 3. Describe how an accrual-based accounting system is different from a cash-based of accounting 4. Describe the types of business structures and the defining features of each structure. The Sources of Generally Accepted Accounting Principles There are four categories in the house of GAAP, Category A through D. They are also in the order of the hierarchy. There are three major sources of GAAP in Category A. They are Financial Accounting Standards Board (FASB) Standards, Interpretations, and Staff Positions; Accounting Principles (APB) Opinions; and American Institute of Certified Public Accountants (AICPA) Accounting Research Bulletins. They are most authoritative pronouncements. Category B includes FASB Technical Bulletins which is no longer issued, AICPA Industry Audit and Accounting Guides and AICPA Statements of Position. Category C has FASB Emerging Issues Task Force and AICPA AcSEC Practice Bulletins. Category D has the least authoritative pronouncements: AICPA Accounting interpretations...
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...critical review of the trade-offs between the concepts of relevance and reliability in financial reporting Theme: Financial Accounting Classification: M41 Author: Prof D Coetsee Affiliation: Department of Accountancy, University of Johannesburg, South Africa Contact address: Department of Accountancy R-Ring 607 University of Johannesburg PO Box 524 Auckland Park Johannesburg South-Africa 2006 Telephone: +27-11-559-3047 Fax: +27-11-559-2777 E-Mail dcoetsee@uj.ac.za A critical review of the trade-offs between the concepts of relevance and reliability in financial reporting |Abstract | |In an information orientated system of financial reporting the move from historical cost to fair value | |accounting has created numerous debates surrounding the trade-offs of the concepts of relevance and | |reliability. This article contributes to the debate by critically reviewing the current developments of | |these trade-offs to determine whether current financial reporting guidelines are appropriate to deal with | |the difficulties and uncertainties of financial reporting. The article found that the proposals of the joint| |framework discussion paper goes a long way in resolving the issues around the trade-offs of relevance and | |reliability. Changing the concept of reliability to faithful representation will...
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...ATTACHMENT E THE FASB’S CONCEPTUAL FRAMEWORK: RELEVANCE AND RELIABILITY Financial Accounting Standards Advisory Council September 2004 INTRODUCTION At the March and June 2004 FASAC meetings, FASAC members discussed aspects of the Board’s conceptual framework, including the need to update, refine, and complete it, and issues relating to the liabilities definition. At today’s meeting, FASAC members will consider other issues relating to the conceptual framework, specifically issues related to the qualitative characteristics of relevance and reliability. Some FASAC members and other FASB constituents have questioned certain of the trade-offs between relevance and reliability that the Board has made in setting accounting standards. Specifically, they have questioned the appropriateness of the trade-offs that the Board has made in requiring financial statement measures that reflect fair values rather than historical costs. Their underlying presumption seems to be that historical costs, while perhaps not as relevant as fair values, are clearly more reliable. In those instances, they assert that the trade-off between relevance and reliability should favor historical costs rather than fair values. Some who question the Board’s trade-offs seemingly believe that reliability should be the dominant characteristic of financial statement measures. Others appear to interpret reliability as having a meaning that differs in at least certain respects from how that term is defined in the conceptual...
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...Chapter 01 Environment and Theoretical Structure of Financial Accounting True / False Questions 1. | The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises. True False | 2. | Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow. True False | 3. | The FASB is currently the public-sector organization responsible for setting accounting standards in the United States. True False | 4. | The FASB's due process invites various interested parties to indicate their opinions about whether financial accounting standards should be changed. True False | 5. | Accounting for stock-based compensation is an area in which the FASB has received little political interference. True False | 6. | The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) changed the entity responsible for setting auditing standards in the United States. True False | 7. | A rules-based approach to standard setting stresses professional judgment as opposed to following a list of rules. True False | 8. | Under federal securities laws, the SEC has the authority to set accounting standards in the United States. True False | 9. | The primary responsibility for properly applying GAAP when communicating with investors and creditors through...
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...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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...Use of Managerial Accounting Tools in Toyota Motor Corporation ------------------------------------------------- ACCT 804 The Use of Managerial Accounting Tools in Toyota Motor Corporation ------------------------------------------------- ACCT 804 Managerial Accounting in Toyota Introduction Modern business environment involves high complexity and growing threat of new entrants, which together make potential challenges to business firms today regardless of the industry they involve. A company cannot survive the current market competition unless the management gets adequate information constantly. The concept of management accounting or managerial accounting is of great importance in this context because it can assist the top management to make sound decisions on various matters. This accounting branch embraces accounting systems, methods, and techniques that can help the organization maximize its profits or minimize losses. Scholars opine that management accounting is the presentation of accounting information in a way that would assist the top management to create potential policies for managing its daily operations. Management accounting is not confined to financial management information, but it is about comprehensive information about overall organizational activities. It is evident that financial management alone is not capable of providing necessary information for performing managerial functions effectively. In contrast, management accounting is able to provide...
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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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...Explaining Basic Accounting Concepts and Business Structures Matthew Philip Moshi ACC/537 September 17, 2012 Joseph P McDonald Basic Accounting Concepts and Business Structures The catastrophic collapse of the stock market in 1929, subsequently resulting in the great depression will forever coincide with the private sector’s formulation and subsequent issue of formal accounting standards (Keiso, Warfield, & Weygandt, p. 6, 2007). Appeals for heightened governmental regulation over financial institutions as well as the stock market, culminated in the formation of the Securities and Exchanges Commission (SEC). With its primary objective to standardize formally the presentation and preparation of accounting information in financial statements to meet the needs of stockholders, the SEC sought the establishment of an official private sector body to set as well as issue accounting standards (Keiso, Warfield, & Weygandt, p. 6, 2007). The ensuing creation and issue of private sector accounting standards corresponds with the establishment of two major accountancy bodies. The first body relates to Financial Accounting Standards Board (FASB). The second body relates to the American Institute of Certified Public Accountants (AICPA). In this respect, the SEC plays an oversight role pertaining to the development and improvement of accounting standards in the private sector. The following statement demonstrates this point: “……………..“it continues to believe that the initiative...
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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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...2009, the Accounting Standards Codification (ASC) became effective causing all previous GAAP literature to become nonauthoritative. The ASC was constructed to simplify and reduce the time required to perform accounting research. It is accessible to subscribers at https//.asc.fasb.org and provides a one stop shop for authoritative GAAP related material. It was many years in the making and made possible by contributions from hundreds of accounting professionals working towards the main goal of streamlining accounting research. Below you will find information about what the Codification is, its goals and purpose, and how affected parties will benefit. Ultimately, after reviewing this information you will gain insight into main topic areas and a better overall understanding of the Codification. First, what is the Accounting Standards Codification (ASC)? The ASC, cited as the FASB Accounting Standards Codification® (Codification), is a subscriber based website which provides useful tools for researching authoritative GAAP related material. It was made authoritative by SFAS 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles. The intent is to make available an up to date research system that makes researching accounting standards easy and efficient. The website database offers a tutorial for researching standards, as well as many additional features such as auto population of related topics to assist with accounting research...
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...To define accounting, is the process to identify measure and communicate economic information for the users of the information to come up with an informed judgement. (Association, n.d.). Standing the test of time, this definition defined the very purpose of accounting, which is to provide information to decision makers. As stated by this definition, accounting itself, is a process by which, financial reports are to be provided for the use of decision makers. Actually, Accounting is an information system wherein the key product of which is a set of financial reports. – The document that reports financial information about an entity to decision makers. Personal Planning, education, expenses, loans and payments, income taxes all use this information system that is accounting, (Conrado T. Valix, 2007) Having been defined as such, it is governed by rules and regulations, ensuring that it will provide a quality financial report enabling its decision makers to create intelligent decisions, these rules and regulations are defined Conceptual Framework – the professional and regulatory framework accounting that are concepts used in the preparation and presentation of financial reports. It covers the Concepts of Capital and Capital Maintenance, the Objective of Financial Statements, the Qualitative Characteristics of the Financial reports , (focusing on the manner of the report’s presentation and content) – or the qualities or attributes that make the reports useful to the users, and...
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...CHAPTER 2 CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL ACCOUNTING Show Me the Earnings! The growth of new-economy business on the Internet has led to the development of new measures of performance. When Priceline.com splashed onto the dot-com scene, it touted steady growth in a measure called “unique offers by users” to explain its heady stock price. To draw investors to its stock, Drugstore.com focused on the number of “unique customers” at its website. After all, new businesses call for new performance measures, right? Not necessarily. In fact, these indicators failed to show any consistent relationship between profits and website visits. Eventually, as the graphs below show, the profits never materialized, and stock prices fell. The lesson here: Although the new economy may require some new measures, investors need to be careful not to forget the reliable traditional ones. PRICELINE.COM Net unique offers by users 3.0 million 2.0 1.0 0 I II III IV 1999 I II III IV 2000 DRUGSTORE.COM Unique customers 2.0 million 1.5 1.0 0.5 0 I II III IV 1999 I II III IV 2000 Stock price $120 a share 80 40 0 I II III IV 1999 I II III IV 2000 2000-IV close $2.13 Stock price $40 a share 30 20 10 0 I II III IV 1999 I II III IV 2000 2000-IV close $1.03 Source: Story and graphs adapted from Gretchen Morgenson, “How Did They Value Stocks? Count the Absurd Ways,” New York Times (March 18, 2001), section 3, p. 1. 34 Copyright ©2008 John Wiley & Sons, Inc. Preview of Chapter 2 ...
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...Conventions of Accounting Accounting is defined as an art of recording, classifying, summarizing and presentation of financial information. Accounting ultimate produces the financial information being used by different interested parties in the organization, the relationship may be direct or indirect. For such presentation, we need certain set principles so that the possibility of presenting the information may not be flexible enough. So keeping in view of this objective, it is required that the presented accounts of different companies are uniform and understandable by the user, principles are required. Principle guides the way the accounts to be prepared. These principles are fundamental guidelines which provide standards for scientific accounting practices. The accounting records of an organization need to be maintained as per the requirement and guidelines developed by the professional body of the country. Different accounting bodies are statutory body in their country for developing the new standards and for improvement in the existence standards. The purpose of accounting standards is to give a most unambiguous way to present the financial statement of a business organization so that it gives a clear understanding about the functioning of it to the target reader. Accounting Conventions are methods or procedures which are widely acceptable. When we record or interpret a transaction, it follows convention. Many times, the meaning of the words principles, concepts and conventions...
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...Explaining Basic Accounting Concepts and Business Structures University of Phoenix 11/20/2010 Accounting 537 Explaining Basic Accounting Concepts and Business Structures There are many important aspects of accounting. The generally accepted accounting principles are accounting rules set out for companies to follow to ensure all companies are on the same page business wise. Qualities of accounting are important in the decision making process of accounting. Accrual and cash bias methods are different ways to count revenue and will be discussed. The final area of review is the different types of business structures. Generally Accepted Accounting Principles. Generally accepted accounting principles are a set of standards and procedures (Kieso, 2007). The AICPA’S Code of Professional Conduct requires all financial statements in accordance with GAAP. The source of hierarchy is based on four categories; A, B, C, and D with A being the most authoritative and D being the least. A/CPA accounting interpretations, Implantation guides, and widely recognized and prevalent industry practices are all included in the D level. The C level is made up of emerging issues and practice bulletins. Level B is no longer issued bulletins, audit and accounting guides, and statements of position. Level A is made up of FASB standards, interpretations, and staff positions, APB Opinions, and AICPA Accounting research bulletins. The hierarchy lists the...
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