Explaining Basic Accounting Concepts and Business Structures

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Explaining Basic Accounting Concepts and Business Structures University of Phoenix 11/20/2010 Accounting 537 Explaining Basic Accounting Concepts and Business Structures There are many important aspects of accounting. The generally accepted accounting principles are accounting rules set out for companies to follow to ensure all companies are on the same page business wise. Qualities of accounting are important in the decision making process of accounting. Accrual and cash bias methods are different ways to count revenue and will be discussed. The final area of review is the different types of business structures. Generally Accepted Accounting Principles. Generally accepted…show more content…
To ensure information is reliable verifiability must be used and is so when independent measures are used. Faithful representation means the numbers and descriptions match the true data. Neutrality is the unbiased information and that the information does not favor one area or section of information over another. The secondary qualities include comparability and consistency. Comparability is the looking for similar or equivalent. Consistency is used to make sure the use of similar events and data from period to period. Consistency is also used to ensure the company uses the same method throughout the process. Accrual Based Vs. Cash Basis of Accounting. Accrual-basis accounting is when the transactions are recorded in the periods in which the event occurs (Kimmel, 2007). The company records the transaction on items when they are earned rather than when they are received. Cash-basis accounting is just the opposite and the company records revenue only when the cash is received. The cash basis method is not allowed under the generally accepted accounting principles because it is important that all companies are on the same system. Business Structures The three major types of business structures include; sole proprietorship, partnership, and corporation. Sole proprietorships are simple to establish and owner controlled and includes many tax
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