Basic Accounting Concepts

Basic Accounting Concepts and Business Structures

Source Hierarchy of GAAP:

The Hierarchy of Generally Accepted Accounting Principles is a standard that defines the meaning of generally accepted accounting principles, identifies the sources of accounting principles, and the process for selecting principles to be used when preparing financial statements (Kieso, et al., 2007). The most authoritative sources of GAAP, Category A, are: FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins (Kieso, et al., 2007). These categories have the highest hierarchy in the House of GAAP. The next level of hierarchy, Category B, includes FASB Technical Bulletins, AICPA Industry Audit and Accounting Guides, and AICPA Statements of Position. Category C sources are FASB Emerging Issues Task Force and AICPA AcSEC Practice Bulletins. The least authoritative sources, Category D, include AICPA Accounting Interpretations, FASB Implementation Guides (Q and A), and Widely recognized and prevalent industry practices. The order of hierarchy is Category A to D and if there is conflict between pronouncements, the higher category should be followed (Kieso, et al., 2007).

Qualities of accounting information:

Good accounting information follows a hierarchy of accounting qualities. The process starts with the users (decision makers) of the accounting information, their understanding of the information and how it impacts their decision making. There has to be a connection between the user and their decisions in order for the information to be useful (Kieso, et al., 2007). The two primary qualities are relevance and reliability. Relevant information aids in the decision making process to actually make a difference, help predict the outcome of events, help confirm previous expectations, and is available to users to before it loses its ability to influence decisions (Kieso, et al., 2007). Reliable accounting information is said to be verifiable,...