Basic Accounting Concept and Business Structures
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Basic Accounting Concepts and Business Structures
Basic Accounting Concepts and Business Structures
The Financial Accounting Standards Board (FASB) is responsible for the establishment and development of financial accounting standards based on a conceptual framework. This conceptual framework is the theory of accounting, which is used to develop the rules of financial accounting called “Generally Accepted Accounting Principles” (GAAP). The FASB prescribes a standard called “The Hierarchy of Generally Accepted Accounting Principles”. This standard categorizes the sources of GAAP (Kieso, Weygandt, & Warfield, 2007).
According to Kieso, Weygandt, & Warfield’s book (2007) the house of FASB represents the hierarchy of the sources of GAAP. These sources are divided into four categories; A, B, C, and D. The category A includes the highest or major sources. FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins are the major sources of GAAP. The source hierarchy requires companies to consider first the category A pronouncements to identify accounting treatments for an event. If these pronouncements are not able to provide support and guidance to address the event then the companies can consider the other sources from categories B through D. If a conflict arises between the pronouncements in categories B through D, companies should examine the higher category, which will be the category B.
The FASB states the objectives of financial accounting and reporting in its conceptual framework. In order to meet these objectives, accounting information should dominate certain qualities; decision-specific and user-specific qualities. The main focus of accounting formation is on decision-specific qualities because the decision usefulness is the most important objective of financial accounting. The decision-specific qualities are divided into two qualities; primary qualities and secondary qualities. The...
Basic Accounting Concepts and Business Structures
The Financial Accounting Standards Board (FASB) is responsible for the establishment and development of financial accounting standards based on a conceptual framework. This conceptual framework is the theory of accounting, which is used to develop the rules of financial accounting called “Generally Accepted Accounting Principles” (GAAP). The FASB prescribes a standard called “The Hierarchy of Generally Accepted Accounting Principles”. This standard categorizes the sources of GAAP (Kieso, Weygandt, & Warfield, 2007).
According to Kieso, Weygandt, & Warfield’s book (2007) the house of FASB represents the hierarchy of the sources of GAAP. These sources are divided into four categories; A, B, C, and D. The category A includes the highest or major sources. FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins are the major sources of GAAP. The source hierarchy requires companies to consider first the category A pronouncements to identify accounting treatments for an event. If these pronouncements are not able to provide support and guidance to address the event then the companies can consider the other sources from categories B through D. If a conflict arises between the pronouncements in categories B through D, companies should examine the higher category, which will be the category B.
The FASB states the objectives of financial accounting and reporting in its conceptual framework. In order to meet these objectives, accounting information should dominate certain qualities; decision-specific and user-specific qualities. The main focus of accounting formation is on decision-specific qualities because the decision usefulness is the most important objective of financial accounting. The decision-specific qualities are divided into two qualities; primary qualities and secondary qualities. The...