Explaining Basic Accounting Concepts and Business Structures
January 16, 2012
Financial accounting is the process of preparing financial information by internal and external users for decision makers. This week topic will identify the basic accounting concepts, business structures, source of generally accepted accounting principles and the importance of the source hierarchy. I will explained the difference in accrual based and cash basis accounting and types of business structures.
The sources of general accepted accounting principles (GAAP) is the common set of procedures and standards designed by the American Institute of Certified Public Accountants (AICPA). An authoritative accounting that consist rules of accounting that are used in preparation and standardize reporting of financial statements in accordance with GAAP by the AICPA’s Code of Professional Conduct. To help reflect an economic position of the company and without GAAP company would be free to decide for themselves what financial information to report or how to report it. Investors and creditors will be able to make financial decisions when the company’s financials are comparable and understandable.
The Hierarchy of Generally Accepted Accounting Principles is to identify accounting principles sources and structure for choosing the financial statements principles that should be utilize when their preparations developed by the FASB (Kiesco, Weygandt, & Warfield, 2007). Its governs what constitutes the major sources of which are GAAP: FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins that falls under four categories A or D in descending order of authority: Statements and Interpretations, Technical Bulletins, Practice Bulletins and Implementation. Category A being the highest and Category D the FASB Implementation Guides (Questions and Answers), and commonly recognized and...