Basic Accounting

Explaining Basic Accounting Concepts and Business Structures Tracy Duran
January 12, 2015
Rebecca Kime

Explaining Basic Accounting Concepts and Business Structures In the field of accounting there have been general accepted accounting principles that on a whole have been accepted and are used universally by everyone (Kieso, Warfield, & Weygandt, 2007). The reason behind these principles is so each company doesn't have their set of values (Kieso, Warfield, & Weygandt, 2007). If every company decided to set their principles, it would be impossible for an individual, to know every different set of standards each company had for reading their financial statements (Kieso, Warfield, & Weygandt, 2007). This would also make it impossible for each group to prepare their financial statements and compare them to other companies (Kieso, Warfield, & Weygandt, 2007). In order for this not to happen the GAAP has a hierarchy who design these standards to follow so this confession will not occur (Kieso, Warfield, & Weygandt, 2007). Four different committees reinforce the GAAP, and each committee has its particular part they maintain (Kieso, Warfield, & Weygandt, 2007). The Securities and Exchange Commission (SEC) is a federal branch that enforces the GAAP to any such company that falls under their jurisdiction (Kieso, Warfield, & Weygandt, 2007). The American Institute of Certified Public Accountants (AICPA) has a committee that issues certain principles and procedures for CPA’s and accountants to follow (Kieso, Warfield, & Weygandt, 2007). The Financial Accounting Standards Board (FASB) helps to improve and report these standards about accounting to the public (Kieso, Warfield, & Weygandt, 2007). The FASB is known as the hierarchy for setting the GAAP to follow, and this is important because there is one set of universally principles every company follows, making everyone’s financial statements comparable (Kieso, Warfield, & Weygandt, 2007). The FASB enforces the GAAP's to ensure accountants everywhere will make quality decisions about the information and calculations for their companies (Kieso, Warfield, & Weygandt, 2007). So every financial statement is correct, honest, and they can compare them to each other from other companies (Kieso, Warfield, & Weygandt, 2007). The first of these qualities that help insure they are useful, and effect is relevance and reliability. These two are considered to be the primary qualities an accountant should follow (Kieso, Warfield, & Weygandt, 2007). The other two are deemed to be the secondary qualities are comparability and consistency (Kieso, Warfield, & Weygandt, 2007). When these four conditions are combined it helps to insure the accountants work is timeless, fair, useful, and the proper decision went into preparing their financial statements (Kieso, Warfield, & Weygandt, 2007). The primary goal of applying these standards to such important job is to ensure the accountant or CPA is keeping the correct financial statements either through accrual basis accounting or cash basis accounting (Kieso, Kimmel, & Weygandt, 2007). The difference of the two is simple, cash basis accounting recognizes revenue only when they receive cash payment, and accrual basis accounting only recognizes revenue when its earned (Kieso, Kimmel, & Weygandt, 2007). The cash basis of accounting is not allowed according to the GAAP because it does not record revenue when incurred and earned (Kieso, Kimmel, & Weygandt, 2007). These rules and regulations help people make the decision on which type of structure they want to use to start their own business. There are three structures they can choice from a sole proprietorship, partnership, and corporation (Kieso, Kimmel, & Weygandt, 2007). The first of these structures is a sole proprietorship that is easy to begin, controlled solely by the owner, and has several tax advantages (Kieso, Kimmel, & Weygandt, 2007). The second is a...

References: Kieso, D. E., Kimmel, P. D., & Weygandt, J. J. (2007). Financial Accounting: Tools for business decision-making, 4e.  
Kieso, D. E., Warfield, T. D., & Weygandt, J. J. (2007). Intermediate Accounting, 12e.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay on Basic Accounting Concepts and Business Structures
  • Accounting Megies Chap 1 Essay
  • accounting Essay
  • Basic Accounting Concepts and Business Structures Essay
  • Acc 1 Essay
  • Essay on Explaining Basic Accounting Concepts and Business Structures
  • Acc/537 Week 1 Basic Accounting Concepts Essay
  • Accounting history Essay

Become a StudyMode Member

Sign Up - It's Free