In this paper, I will discuss the sources of GAAP as well as the hierarchy. I will also describe the qualities of good accounting information; the differences in accrual based and cash based accounting; and the different types of business structures.
General Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP) is a term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction which are generally known as Accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statements.
The American Institute of Certified Public Accountants (AICPA), which is the national professional organization of practicing Certified Public Accountants (CPAs), designated Financial Accounting Standards Board (FASB) as the body that establishes generally accepted accounting principles (GAAP) for federal reporting entities. As such, the FASB is responsible for identifying the GAAP hierarchy for federal reporting entities.
The FASB is working on a standard, The Hierarchy of Generally Accepted Accounting Principles, that defines the meaning of generally accepted accounting principles. This standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. The standard categorizes the major sources of GAAP as follows: a.Officially established accounting principles consist of FASB Statements of Federal Financial Accounting Standards (Standards) and Interpretations. FASB Standards and Interpretations will be periodically incorporated in a publication by the FASB. b.FASB Technical Bulletins and, if specifically made applicable to federal reporting entities by the AICPA and cleared by the FASB, AICPA Industry Audit and Accounting Guides. c.Technical Releases of the Accounting and...