737 Words Jul 19th, 2012 3 Pages
Explaining Basic Accounting Concepts and Business
University of Phoenix

Accounting has become an indispensible part of today’s economy. It is being used to keep a track of company’s profit or loss, assets, liabilities and owner’s equity. Financial accounting, on the other hand, is to prepare financial reports to external parties such as: investors, creditors, and governmental agencies. However, prior to reporting any information to external users, financial accounting must be completed according to Generally Accepted Accounting Principles guidelines.
Identify the hierarchy of sources for generally accepted accounting principles. Generally accepted accounting principles, or GAAP for short, are the accounting
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For instance, if a company follows a set of rules in order of authority ranging from A – D; the company must start with highest rule (A) and work its way down to rule (D). A hierarchy is required for all financial businesses to function properly.
Describe the qualities of accounting information Accounting information provides a detailed report containing all financial information according to its significance. By following the FASB standards, it differentiates the more useful information from the less useful accounting information. Therefore; this gives decision makers a more precise outlook on how to determine the company’s financial stability and worth before investing. However, in order for decision makers to take this information seriously, there must be a connection between the users and decision-making. This connection is called understandability. It allows decision makers to see the importance of accounting information. A few other qualities useful to decision making are relevance, reliability, comparability, and consistency. Out of the many qualities listed, I consider reliability is the most useful quality because decision makers must be able to reliable on accurate information.
Compare and contrast accrual and cash basis of accounting. In accounting, accrual basis and cash basis can be distinguished by the recording of revenues and expenses. Under the accrual method, transactions are

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