Basic Accounting Concepts and Business Structures
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).
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 ...view middle of the document...
FASB Standards, APB Opinions, and AICPA Accounting Research Bulletins are the most authoritative under GAAP.
Accounting information to be effective, it must be accurate, fair, and produced in a timely basis. The purpose of financial statements is so the right managers and companies are able to attract investor capital. Financial statements need to be understandable, which is why the FASB has created standards for external financial information. There are four basic assumptions that must be represented by the company that underlie financial accounting structure; economic entity, which ensures that information provided in the financial statements are of the business and not the owners; monetary unit, which means all data in the financial statements are in terms of money; going concern assumption, which expects a company to stay in business for long enough to pay its debts; and periodicity assumption, which ensures that financial information is presented repeatedly throughout the lifespan of the business and on a consistent basis.
The major differences between accrual and cash basis accounting are in revenue recognition and the matching principle. Accrual basis companies record revenue when it is earned. The same company under cash basis accounting would instead...