Essay on Basic Accounting Concepts and Business Structures

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Basic Accounting Concepts and Business Structures
Pamela Inkelaar
University of Phoenix
Hung Tran
ACC 537
February 2, 2015

Basic Accounting Concepts and Business Structures
Topic 1: Identify and describe the sources of generally accepted accounting principles. Identify source hierarchy and explain why the hierarchy is important.
Accounting has multiple forms and concepts depending on the type of business. This paper is going to identify the sources of generally accepted accounting principles; and identify the source of hierarchy with an explanation of why the hierarchy is important. This paper will describe effective accounting, along with the difference between accrual-based accounting from cash basis accounting. The last item discussed will be three business types, structure and their features.
“The sources of generally accepted accounting principles (GAAP) are financial accounting standards board (FASB Standards), interpretations, and staff positions, accounting principles board (APB Opinions), and American institute of certified public accountants (AICPA)” (Kieso, Weygandt, & Warfield, 2007). “The financial accountant standards board (FASB) is the source of the Hierarchy. The Hierarchy of generally accepted accounting principles is a standard that the FASB is working. What the Hierarchy does, it identifies the source of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements” (Kieso, Weygandt, & Warfield, 2007).
Topic 2: Describe effective accounting information using the qualities of accounting information from your readings this week. Effective accounting is completeness, relevance, accuracy, clarity, properly communicated, timely, and cost efficient. Completeness is to have all the necessary information included in all reports produced by the organization. All accounting information should be relevant to the objective and for the user. All accounting information must be accurate. The accounting information must be clear for the person in need to understand it. Accounting departments create accounting reports but they must also communicate the reports to the right departments and people in need of them. (KIESO, WEYGANDT, & WARFIELD, 2007)
Topic 3: Describe how an accrual based accounting system is different from a cash basis of accounting.
The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized. The cash method is most used by small businesses and for personal finances. The cash method accounts for revenue only when the money is received and for expenses only when the money is paid out. On the other hand, the accrual method accounts for revenue when it is earned and expenses goods and services when they are incurred. The revenue is recorded even if cash has not been received or if expenses have been incurred but no cash has been paid. Accrual accounting is the most common method used by businesses. (KIMMEL, WEYGANDT, & KIESO, 2007)
Topic 4: Describe the types of business structures and the defining features of each structure.
Sole Proprietorship
A sole proprietorship is an unincorporated company owned (and often operated) by a single
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