...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 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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...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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...Generally Accepted Accounting Principles A set of standards developed and universally practiced are called Generally Accepted Accounting Principles (GAAP). Generally accepted means that an authoritative accounting rule-making body, has accepted as appropriate due to their universal application. Otherwise each company would have created their own standards. There are some organizations that are very important in the development of GAAP, such as the Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), the Financial Accounting Standard Board (FASB) and the Government Accounting Standard Board (GASB). The SEC helps to develop and standardize financial Information for the stockholders under the Securities and Exchange Act of 1933 and 1934. The AICPA contributes with committees and boards. FASB establishes and improves standards of financials accounting and reporting for the guidance and education of the public. GASB, was created due to the financials prepare by the state and local government were not compare to reports prepared by private organization. Generally Accepted Accounting Principle has authoritative support. The hierarchy that define the meaning of GAAP included FASB standards and interpretation and staff positions, Accounting Principle Board Opinions (APB), which determines appropriate accounting practices and the AICPA accounting Research Bulletin. These standards identify the sources of the accounting principle and the...
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...Explaining Basic Accounting Concepts and Business Structures The Hierarchy of Generally Accepted Accounting Principles identifies the sources for the accounting standards and principles. These sources include “FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins” (Kieso, Weygandt, & Warfield, 2007, p. 12). When companies prepare financial statements in accordance with GAAP, they sometimes run into situations in which some standards do not address a certain situation or two standards may conflict. Because of this the Statement of Accounting Standard Number (SAS) 69 established a hierarchy to follow. The hierarchy forms a kind of order for GAAP rules and procedures used in preparing financial statements. The hierarchy is made up of four categories that have a descending level of authority. For example, “Category A consists of the following principles: FASB Statements of Financial Accounting Standards, FASB Interpretations, APB Opinions, and AICPA Accounting Research Bulletins” (eNotes, 2011, para. 5). Because the categories are in descending order, category A would take precedence over the other three categories. The FASB identified certain qualities of accounting information that make it effective for making decision. For accounting information to be considered effective it should possess these four qualities: relevance, reliability, comparability, and consistency. The information should be relevant enough to...
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...Explaining Basic Accounting Concepts and Business Structures Generally Accepted Accounting Principles (GAAP) are guidelines for accounting that have either been specifically established by one of the governing bodies tasked with establishing and overseeing accounting practices or are “accepted” as a practice by having been time proven and having “universal” application (Kieso, Weygandt, and Warfield (2007). There are four main organizations that are “instrumental in the development of financial standards (GAAP) in the United States.” (Kieso, Weygandt, and Warfield (2007). These are the Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), and the Government Accounting Standards Board. (GASB) (Kieso, Weygandt, and Warfield (2007) The SEC is the sole body for enforcement, with the AICPA and the FASB having been created at the urging of the SEC for a private sector entity to use its resources to establish effective guidelines. The SEC continues to support the formation and improvement of accounting guidelines by the private sector as long as they are “subject to commission oversight” (Kieso, Weygandt, and Warfield (2007). The FASB uses “The Hierarchy of Generally Accepted Accounting Principles,” and they are listed as follows: FASB Standards, Interpretations, Staff Positions, APB (Accounting Principles Board), and AICPA Accounting Research Bulletins...
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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 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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...Basic Accounting Concepts and Business Structures Topic 1 Four organizations are involved in the production of accounting standard: Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), and Government Accounting Standards Board (GASB). SEC The SEC is a federal organization that helps develop standards for financial information presented to stockholders. SEC requirements are based on FASB and AICPA standard. The SEC believes that the best method of establishing accounting information in through private organizations. The SEC requires registrants to abide by GAAP. The SEC may prevent a company from trading securities on the exchanges if the company is noncompliant to standards. AICPA The AICPA is a private organization of accountants that prepares ethical standards for audits of private companies, non-profit organizations and government organizations. It produces Generally Accepted Auditing Standard (GAAS) and is also a contributor to GAAP. FASB The FASB is a private organization that develops Generally Accepted Accounting Principles for the United States. It aims to promote standards to assist companies in production of accurate, standard, and explanatory financial statements in the private sector. GASB The GASB is structured very similarly to FASB; however, it aims to provide standards for the financial reports of government organizations. Hierarchy Because the SEC is...
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...Week One Individual Explaining Basic Accounting Concepts and Business Structures Week One Individual Generally Accepted Accounting Principles and Source Hierarchy The sources of Generally Accepted Accounting Principles are the FASB standards, Interpretations, and Staff Positions, APB Opinions, AICPA Accounting Research Bulletins and other authoritative pronouncements. The hierarchy is as such: Category A, B, C, and D and Category A is the highest hierarchy. The following hierarchy is used in selecting the principles to be used in the preparation of the financial statements. Category A: FASB Standards, Interpretations and Staff Positions, APB Opinions, AICPA Accounting Research Bulletins. Category B: FASB Technical Bulletins (no longer issued), AICPA Industry Audit and Accounting Guides, AICPA Statements of Position. Category C: FASB Emerging Issues Task Force, AICPA AcSEC Practice Bulletins. Category D: AICPA Accounting Interpretations, FASB Implementation Guides (Q and A), widely recognized and prevalent industry practices. Other authoritative literature is used when accounting transaction occur and are not covered in the documents of the hierarchy. Effective Accounting Information Effective accounting information is vital to the growth and continuance of business. Relevance, reliability, comparability, and consistency are necessary to make accounting information useful for decision-making purposes. Relevance and reliability are the primary...
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...Economics Paper Deborah Robinson University of Phoenix ECO365 Brad Bennett March 2, 2009 Introduction The following paper will define economics, microeconomics, and the law of supply and demand. The paper will identify the factors leading to a change in supply and a change in demand, and will also analyze the basis for the trends in consumption patterns discussed in the article “As US Shoppers Retreat, Can World Thrive?” The author of the paper will analyze the article by considering the utility derived from the products mentioned in the mentioned article, and will describe what has occurred to change the demand for, or the supply of, the good or service. The paper will then conclude with the market prices of the products or services. Define Economics Economics is the research and study of income, production, land, investments, taxes, government spending and labor. Economics is a study of how people choose to earn and spend their resources. The choice needs to be made individually by people and countries about what goods and services they can purchase and which ones they need to delay. Resources are scarce and are pushing people and countries to make choices. Economics is studied from two perspectives. The first being governments of nations seek to maximize the production of countries. This perspective is referred to as macroeconomics. The second perspective is of individuals and firms; this perspective is known as microeconomics. Define Microeconomics ...
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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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...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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...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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