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Basic Accounting Concepts Essay

1043 words - 5 pages

Explaining Basic Accounting Concepts and Business Structures

Explaining Basic Accounting Concepts and Business Structures
Good information is the basis of accounting. Development in accounting practices has led to valuable information from the standardization boards for accounting principles. Different types of companies use these standards to keep financial records for their businesses.
Four sources of generally accepted accounting principles (GAAP) are the Securities and Exchange Commission (SEC), American Institute of Certified Public Accounts (AICPA), Financial Accounting Standards Board (FASB) and Government Accounting Standards Board (GASB).
The SEC involvement with accounting ...view middle of the document...

The FASB assembles all parts of GAAP, calling it the Accounts Standards Codification (ASC). Accountants follow the hierarchy of GAAP to determine guidance for following GAAP. The ASC integrates all of the previous standards from other boards, such as APB, AICPA, and FASB, and put them into one form. This helps create meaningful and quality information in accounting.
In order for the financial information to be relevant to the people using the information, it must be up-to-date. Releasing quarterly financial statements can keep the public informed on how the company is currently performing. Releasing this data once a year is not as relevant to the users because of the infrequency of the report. The public must be able to use the information in a timely manner so they can make a better decision on their choices involving the company (Kieso, Weygandt, & Warfield, 2007).
The reliability of the information is also essential because the users need to know the information is correct. Trust in the company is accurately portraying its earnings is important to the users. Also the company should remain neutral in the information of the report. The company should not decide to leave information in or out of their report because they think it will help the report. The verification by another auditor will ensure the quality of the report. The ability for another person to take the same numbers and information on a company should be able to come up with the same report (Kieso, Weygandt, & Warfield, 2007).
The comparability and consistency of the financial reports are also important. Showing the company’s information with the use of GAAP helps the users compare one company to the next. When all companies follow the GAAP, the reports provide the same basic information in the same format. Using the same accounting method for every financial report will keep the reports consistent with each other. Switching from one accounting method to another does not allow the two reports to be comparable (Kieso, Weygandt, & Warfield, 2007).
Accrual accounting is the recognition of revenue or expense when the transaction of a product or service occurs between two parties. Once the transaction occurs, the agreed upon cost is written into the company’s books. Cash basis accounting is the...

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