Basic Accounting Concepts

Basic Accounting Concepts and Business Structures

Three organizations are primarily responsible for setting the standard for generally accepted accounting principles (GAAP). The Financial Accounting Standards Board (FASB) issues standards, interpretations and staff positions. The Accounting Principles Board (APB) releases opinions and the American Institute of Certified Public Accountants (AICPA) writes account research bulletins. FASB standards are considered to be GAAP level rules. Interpretations are statements that modify current standards. Staff positions provide guidance in interpreting standards. AICPA sends out research bulletins to address various accounting issues (Kieso, Wegandt, & Warfield, 2007).

A firm needs to decide what method is the best for presenting its accounting data. In Intermediate Accounting (2007), it is suggested that the company should use the method that “provides the most useful information for decision-making purposes.” A hierarchy is presented as a method of analyzing the quality of accounting information. First on the list are the users of accounting information. These are people who have to make decisions from the reported data. These people are the target audience for any financial reporting the company plans. The firm must also consider the cost benefit relationship to determine if an approach is feasible and must also determine that the information will matter. It must make sure that the information being relayed can be understood by the target audience. How relevant data is needs to be a factor in the decision. Kieso, et al., writes that relevant data needs to be predictive, that it can be used to set expectations, and that it can be used to evaluate previous predictions. Another factor is reliability; that the data presented is accurate in its representation of the situation reported and the route that led there and also that the information is the same regardless of who is looking at it (Kieso, Wegandt, & Warfield,...