Basic Accounting Concepts and Business Structures

Basic Accounting Concepts and Business Structures

Elizabeth Grady

ACC537

August 8, 2011

Dr. Dan Gilbert

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 category. In May 2008, the FASB issued FAS 162 changing the GAAP hierarchy from an auditing to an accounting standard. In FAS 168, the categories are reduced into a two level hierarchy that took effect with the Codification after September 2009. The new levels are authoritative and nonauthoritative.

Accounting Information

People are using financial statements daily to make many...