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 as they are preparing statements. Standards can often be complex, ambiguous or conflicting therefore, hierarchy levels of the GAAP were established as a framework for selecting the principle to be used when preparing statements. The categories are set up as the most authoritative being category A, which includes FASB standards, interpretations, and staff positions; APB opinions; and AICPA