Explaining Basic Accounting Concepts And Business Structures

667 words - 3 pages

Explaining Basic Accounting Concepts and Business Structures
The Hierarchy of Generally Accepted Accounting Principles identifies the sources for the accounting standards and principles. These sources include “FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins” (Kieso, Weygandt, & Warfield, 2007, p. 12). When companies prepare financial statements in accordance with GAAP, they sometimes run into situations in which some standards do not address a certain situation or two standards may conflict. Because of this the Statement of Accounting Standard Number (SAS) 69 established a hierarchy to follow. The hierarchy forms a kind of ...view middle of the document...

Consistency in accounting information is important to users because it allows them to see that the company remains consistent in the use of accounting standards.
The two methods of accrual based accounting and cash basis accounting are different in that the time when transactions are recorded are different. Credits, debits, sales, and purchases are recorded differently for each of these systems. This means that revenue and expense recognition is different as well. Under accrual basis, revenue is recognized when revenue is earned and realized, meaning payment has been received or expected to be received during the accounting period. Also under the accrual basis, the matching principle is used, which means that expenses are recognized when revenue is recognized. Under the cash basis accounting method, however revenue and expenses are recognized only when cash is received or cash is paid. The matching principle is not used in this method.
The owner of a business must choose from five basic types of business structures: Sole Proprietorship, Partnerships, Corporations, “S” corporations, and Limited Liability Company’s (LLC). Sole Proprietorships are the simplest...

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