Some Accounting Concepts and Terms

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Introduction In this text, I discuss a number of accounting concepts and terms. In so doing, I also explain the accounting equation and the various accounts that belong to each component of the equation. Further, I point out those considered the key audience of financial statements as well as other groups who may be interested in the information contained in financial statements. Part I Generally Accepted Accounting Principles (GAAP) Basically, these include all those procedures as well as standards recommended by the Financial Accounting Standards Board (FASB) and utilized by entities as they seek to draft their financial statements. These standards can hence be seen as a compilation of agreed upon procedures that govern not only the reporting but also the recording of information contained in financial statements. According to Edwards and Hermanson (2007), "Generally Accepted Accounting Principles (GAAP) set forth standards or methods for presenting financial accounting information." Adherence to these standards enhances the standardization of financial accounting information. This standardization in one way or the other enables those interested in the information contained in financial statements to compare financial statements from different entities in a more straightforward way. Further, by ensuring that firms embrace consistency in the preparation of financial statements, GAAPs ease the work of investors as the performance of a company over the years can be
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