Explaining Basic Accounting Concepts and Business Structures

The cash basis of accounting records revenues when cash is received and expenses when cash is paid out. The accrual basis of accounting records revenues when they are earned and expenses when resources are used.

For example, the business entity means that commercial expenses are kept separate from personal expenses and the monetary unit is generally the U.S. dollar. Next, there are four basic principles that cover historic costs, revenue recognition, matching and full disclosure. For instance, the historical cost principle mandates that companies report their asset and liability acquisition costs instead of reporting the fair market value. On the other hand, the revenue recognition principle states that companies must only record earned revenue, not received revenue. This forms the basis of accrual basis accounting. Finally, there are four basic constraints, which include objectivity, materiality, consistency and conservatism. To illustrate, the objectivity principle mandates that financial statements produced by the company’s accountants must be based on factual evidence. Conversely, the consistency principle means that the company must use the same accounting methodology for every accounting period. Overall, the GAAP provides structured consistency and transparency to all aspects of accounting and financial

Under GAAP, it is possible to use cash-basis or accrual basis accounting for revenue recognition. Under cash basis, revenue is recognized with payment is received. Under accrual basis, revenue is recognized when it becomes economically significant. GAAP has specific requirements for various industries on when an event qualifies to be recognized as revenue.

According to Seaquist (2012) the most common forms of businesses are Sole proprietorships, Partnerships, Limited partnerships, Corporations, and Limited liability companies (LLCs). (para. 1). These five business structures are based on the number of owners and the type of service or product that will be offered.

Accrual basis accounting requires revenues to be reported when earned and expenses when incurred, regardless of the timing of cash receipts or payments. Accrual basis accounting is required under GAAP. Cash basis accounting reports revenues when cash is received and expenses when cash is paid. The cash basis accounting is not allowed under

Accrual accounting enables management to exercise its unique understanding of their business to convey important information about its economic welfare (relevance) and allows management some discretion to manipulate important information about the company’s economic welfare (reliability). Accounting analysis evaluates management's judgment on how it chooses to use accruals.

Generally accepted accounting principles allows the accounting profession to follow a recognized organization of objectives, to provide a structure for solving problems, to improve the understanding of financial statement and confidence in financial reporting, and to develop contrast among companies financial statements that can be generally accepted and universally practiced, “generally accepted” means that a reliable accounting organization has developed a standard of reporting that has been accepted because of the universal application (pg. 6, Kieso, Weygandt, & Warfield, 2007). There are four organizations that are evolved in the

Using the Small Business Administration website, I was able to research six different types of business structures and determine which one would be the perfect fit for WhataPeach. There is Sole Proprietorship, Limited Liability Company, Cooperative, Corporation, Partnership, and S Corporation with sub-categories among each of these structures.

Accounting is a financial information system designed to record, classify, report, and interpret financial data. The accrual concepts states that accounting income is measured by matching the expenses incurred in a given accounting period with the revenues earned in that period. The accounting cycle is 6 steps.

Accounting principles are like the Ten Commandments to a CPA. The principles are recommendation or instructions on what an account should follow when logging and informing on all accounting transactions. Businesses rely on their account every month to maintain the financials records of the company. At the end of each month, it is important for every transaction to be documented and posted as a financial entry in the monthly trail balance. An account needs to ensure all journaling is correct; an account must know the importance of how to record prepaid expenses, unearned revenues, accrued expenses, and accrued revenues.

Generally accepted accounting principles (GAAP) are the standard structure of the guideline for financial accounting. GAAP contain balance sheet item sorting, share measurement and revenue recognition, organizations need to carefully scan their financial statement when they use GAAP. When accountants record and summarize financial statement, they need to apply these standards into their work. The Financial

In accrual basis accounting, income is reported in the fiscal period it is earned, regardless of when it is received, and expenses are deducted in the fiscal period they are incurred, whether they are paid or not. In other words, using accrual basis accounting, you record both revenues and expenses when they occur. The difference between the two types of accounting is when revenues and expenses are recorded. In cash basis accounting, revenues are recorded when cash is actually received and expenses are recorded when they are actually paid (no matter when they were actually invoiced).

Validity or valid: the extent to which a measurement accurately reflects the concept, which is intended to measure

Accrual Basis ­ Method of ACCOUNTING that recognizes REVENUE when earned, rather than when  collected. Expenses are recognized when incurred rather than when paid.  Accumulated Depreciation ­ Total DEPRECIATION pertaining to an ASSET or group of assets from  the time the assets were placed in services until the date of the FINANCIAL STATEMENT or tax return.  This total is the CONTRA ACCOUNT to the related asset account.  Additional Paid in Capital ­ Amounts paid for stock in excess of its PAR VALUE or STATED VALUE.  Also, other amounts paid by stockholders and charged to EQUITY ACCOUNTS other than CAPITAL  STOCK.  Adjusted Basis ­ After a taxpayer 's basis in property is determined, it must be adjusted upward to  include any additions of capital to the property and reduced by any returns of capital to the taxpayer.  Additions might include improvements to the property and subtractions may include depreciation or  depletion. A taxpayer 's adjusted basis in property is deducted from the amount realized to find the gain  or loss on sale or disposition.  Adjusted Gross Income ­ Gross income reduced by business and other specified expenses of  individual taxpayers. The amount of adjusted gross income affects the extent to which medical  expenses, non business casualty and theft losses and charitable contributions may be deductible. It is  also an important figure in the basis of many other individual planning issues as

With a desire to be an entrepreneur, Shania has to determine what type of business structure that best represents her business. There are a variety of business structures that Shania can use to establish her business. These specific types are a sole proprietorship, corporation, partnership, limited partnership, limited liability company, and a few others (U.S. Small Business Administration, 2015). Each of these structures has their unique differences and characteristics.