Explaining Basic Accounting Concepts

ACC537 Financial Accounting

Explaining Basic Accounting Concepts

Generally accepted accounting principles are those that are have been accepted due to its universal application. The four parties involved in the defining process of a generally accepted accounting principle are: The Securities and Exchange Commission (SEC); American Institute of Certified Public Accountants (AICPA); Financial Accounting Standards Board (FASB); Governmental Accounting Standards Board (GASB).

The FASB has a mission to establish and improve standards of financial accounting and reporting for the guidance and education of the public. This is the primary source of creating the generally accepted Accounting principles, with help and input from the other organizations. The SEC develops and establishes a standardized way that companies present information to stockholders. The SEC monitors activities on the Stock Market, so companies that are publicly traded must adhere to guidelines. The AICPA is an organization of practicing Certified Public Accountant that has vital contribution to developing the GAAP. The GASB is in place to address any issues that may arise through the State and local governments.

Each source has its own contributions and responsibilities in ensure proper accounting procedures are in place and being practiced. If a business is not adhering to the processes in place, severe penalties are ensured.

Those that are reviewing financial information are looking for information that is useful to their needs. The two primary qualities that make accounting information useful in decision making are Relevance and Reliability. Relevant information is that capable of making a difference in decision making. Relevant information helps users make predictions about outcomes of past or present events. Reliable information is able to be verified.

It is important for accounting information to possess both of these qualities for users to obtain the useful...