Basic Accounting Concepts

Basic Accounting Concepts & Business Structures

Abraham McFarland II

Financial Accounting/ACC 537

February 13, 2012

James Neuner

Basic Accounting Concepts & Business Structures

In the field of Accounting, there are basic concepts and business structures that are fundamental in understanding accounting for companies. Generally Accepted Accounting Principles (GAAP) governs companies accounting and reporting practices. Accounting Information used must be effective, there are qualities of accounting information that maintains its usefulness for decision-making. Accrued-based accounting and Cash-basis accounting are the two forms of accounting systems used. Finally companies are formatted to certain business structures.

The accounting field has developed standards that are generally accepted and practiced. “Generally accepted accounting principles (GAAP) are those principles that have substantial authoritive support, such as FASB Standards, Interpretations, and Staff positions, APB Opinions and Interpretations, AICPA accounting research bulletins, and other authoritive pronouncements.” (Kieso, 2007) The Hierarchy of Generally Accepted Accounting Principles represents a chart of governing boards and sources from top to bottom (most authoritive to least) consulted by Accountants. Companies seek support from these sources or chart to verify their accounting treatments.

As accountants it is essential to companies to present effective accounting information for decision making. There are qualitative characteristics of accounting as identified by FASB. Relevance, reliability, comparability, and consistency are qualities that make accounting information useful for decision making. “Relevant information helps users predict the ultimate outcome of past, present, and future events. Relevant information also helps users confirm or correct prior expectations. Accounting information is reliable to the extent that it is verifiable; it is...