Premium Essay

The Concepts of Accounting and Qualities of Accounting Information

In: Business and Management

Submitted By anaaba
Words 964
Pages 4
THE CONCEPTS OF ACCOUNTING AND QUALITIES OF ACCOUNTING INFORMATION

A) Accounting is the process of identifying, recording, classifying, summarizing and evaluating information’s that can be measured in monetary terms for accurate communication of these economic events through proper presentation and interpretation for users of the information to make a favorable decision. However for accounting to achieve its objective, than the carried information should have certain qualities and six of them are explained with example below; 1. Accounting information must be relevant.
The information must be essential to users to predict future possible outcomes. Relevant information should inform the users the financial performance of the entity to make accurate decisions. However, if the information limits users to know the financial performance of the entity to for tile future happening than the information has failed it relevant. For example if net income and its associates confirm investors predictive about future cash generation ability then the net income has feedback value for investors making it a relevant information. 2. Accounting information must be reliable.
A quality business decision making is positively related to reliability of accounting information. The information can be reliable if it is verifiable and is natural. Verifiable means the information should prove be-young doubt by showing clearly income and expenses posted to the accounting general ledges for accurate outcomes. The information should also be recorded as it is without any manipulations to create a different picture but must be of it natural or original state to ensure reliability. For example if ANADOS Company Limited gains loss with its natural information it should be presented to the uses as such without making it as profit. 3. Accounting information should be...

Similar Documents

Premium Essay

Basic Accounting Concepts

...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....

Words: 1165 - Pages: 5

Premium Essay

Faithful Representation

...Changing the concept of reliability to faithful representation will not negatively impact on | |resolving the issues. Some recommendations are made to enhance the trade-off concepts. | Keywords: Faithful representation Financial reporting Framework Discussion Paper Qualitative characteristics Relevance Reliability 1. Introduction The current international move from historical cost to fair value accounting has...

Words: 6702 - Pages: 27

Free Essay

Explaning Accounting Concepts and Business Structure

...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....

Words: 708 - Pages: 3

Premium Essay

Harvard

...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....

Words: 3417 - Pages: 14

Premium Essay

Basic Accounting Concept

...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....

Words: 767 - Pages: 4

Premium Essay

Acc 311 Ch1 Test Bank

...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.   ...

Words: 17634 - Pages: 71

Premium Essay

The Use of Managerial Accouting Tools

...The 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....

Words: 3325 - Pages: 14

Premium Essay

Basic Accounting Concepts and Business Structures

...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....

Words: 438 - Pages: 2

Premium Essay

Resource

...Preview of Chapter 2 As the opening story indicates, users of financial statements need relevant and reliable information. To help develop this type of financial information, financial accounting and reporting relies on a conceptual framework. In this chapter, we discuss the basic concepts underlying the conceptual framework, as follows. CONCEPTUAL FRAMEWORK U N D E R LY I N G F I N A N C I A L A C C O U N T I N...

Words: 23554 - Pages: 95

Premium Essay

Finance

...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....

Words: 2809 - Pages: 12

Premium Essay

Asc Overview

...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. The Codification improved the quality of standards and the standard-setting process by improving the conceptual framework, codifying existing accounting literature, transitioning to a single standard-setter regime, and converging FASB and IASB standards (2.). Essentially, it provides thousands of accounting standards in one location making research simple and efficient....

Words: 1307 - Pages: 6

Premium Essay

Explaining Basic Accounting Concepts and Business Structures

...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: “…………….....

Words: 2086 - Pages: 9

Premium Essay

Acc537 Basic Accounting Concepts

...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)....

Words: 947 - Pages: 4

Premium Essay

Abcdefghijklmnop

...La Trobe Business School BUS5AFS: Topic 2 – Principles of Accounting 4 ACCOUNTING VALUE ADDS • • • • • • Improve quality and reduce costs Improve sharing knowledge Improve supply chain Improve efficiency and effectiveness Improve internal control Improve decision making La Trobe Business School BUS5AFS: Topic 2 – Principles of  Accounting IMPROVE DECISION MAKING • Identify situations that require action • Reduce uncertainty • Provide alternative choices • Provide feedback on previous decisions • Provide accurate and timely information La Trobe Business School BUS5AFS: Topic 2 – Principles of  Accounting MAJOR FOCUSES OF...

Words: 1247 - Pages: 5

Premium Essay

Ebook - Intermediate Accounting - Chapter 2

...Identify the qualitative characteristics of accounting information. Define the basic elements of financial statements. •6 •7 Describe the basic assumptions of accounting. Explain the application of the basic principles of accounting. Describe the impact that constraints have on reporting accounting information. •8 •5 What Is It? Everyone agrees that accounting needs a framework—a conceptual framework, so to speak—that will help guide the development of standards. To understand the importance of developing this framework, let’s see how you would respond in the following two situations. SITUATION 1: “Taking a Long Shot . . . ” To supplement donations collected from its general community solicitation, Tri-Cities United Charities holds an Annual Lottery Sweepstakes. In this year’s sweepstakes, United Charities is offering a grand prize of $1,000,000 to a single winning ticket holder. A total of 10,000 tickets have been printed, and United Charities plans to sell all the tickets at a price of $150 each. Since its inception, the Sweepstakes has attracted area-wide interest, and United Charities has always been able to meet its sales target. However, in the unlikely event that it might fail to sell a sufficient number of tickets to cover the grand prize, United Charities has reserved the right to cancel the Sweepstakes and to refund the price of the tickets to holders. In recent years, a fairly active secondary market for tickets has developed....

Words: 22128 - Pages: 89