...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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...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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...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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...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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...A Basic guide to finance and accounting This article will explain the importance of finance and accounting in a start-up business and also demonstrate the means that business’ can source money internally and externally. The start-up idea I will be relating this too is a car dealership in Yorkshire Mikes wheels. Internal finance is money that can be sourced from inside the business. The business in question is a small start-up business so the sources of finance are limited in terms of selling assets to free up cash; the premises are fixed assets as they are vital to the business. The cars are current assets as it is easier to turn them into cash therefore due to the nature Mikes Wheels selling cars is the objective. Profits retained from start-up businesses are usually minimal, as an owner personal savings and input are the main internal source unless a bank loan is secured. An external source of finance is the phrase used to describe funds acquired outside the business, usually used in contrast to internal sources of finance the finance is acquired from a party separate to the business e.g a) Owners who invest money in the business over a long period of time. The owner of Mikes Wheels will find himself needing to inject money into the business for a couple of years as Mikes business grows. b) Loans from a bank or from family and friends. c) Debentures are loans made to a company. d) A mortgage, which is a special type of loan for buying property where monthly payments...
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...I agree to a certain extent that budgeting is a key component in management short and long term planning. Budgeting is a key process for planning, monitoring and controlling the finances of a firm. It focuses in points evaluating the alternative choices before making a decision. Budgeting serves many different purposes such as monitoring the revenue and expenditure over a certain time frame, or it can also anticipate the income and expenses over the financial year. Budgets help you determine where you can allocate your money and how you will use it. It should, ideally, allow for the goals of people to meet the goals of the company. Any items that are purchased and paid for within the year would be short-term budgeting for example; a car rental business would need to include the cost of fuel and maintenance of the vehicles for a year in the annual budget. Items that are paid over a number of years are long-term budgets for example; a business that budgets the costs of replacing its vehicles every ten years. Sub-budgets are usually prepared by most entities. Manufacturing entities, for example, might prepare sales, production and administration budgets which would be combined into an overall budget. This overall budget, which is also known as a master budget, is when the sub-budgets are combined into one which is a budgeted income statement, budgeted statement of financial position and a budgeted statement of cash flows. Master budgets are closely looked at to see whether a bigger...
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...Business Finance & Accounting The American Accounting Association define accounting as follows: "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information! Let's look at the key words in the above definition: - It suggests that accounting is about providing information to others. Accounting information is economic information - it relates to the financial or economic activities of the business or organisation. - Accounting information needs to be identified and measured. This is done by way of a "set of accounts", based on a system of accounting known as double-entry bookkeeping. The accounting system identifies and records "accounting transactions". - The "measurement" of accounting information is not a straight-forward process. it involves making judgements about the value of assets owned by a business or liabilities owed by a business. it is also about accurately measuring how much profit or loss has been made by a business in a particular period. As we will see, the measurement of accounting information often requires subjective judgement to come to a conclusion - The definition identifies the need for accounting information to be communicated. The way in which this communication is achieved may vary. There are several forms of accounting communication (e.g. annual report and accounts, management accounting reports) each of which serve a slightly different purpose. The communication...
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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 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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...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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