Basic Accounting Concepts and Business Structures

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Basic Accounting Concepts and Business Structures
Different types of businesses use different accounting methods, small businesses tend to use the cash-basis of accounting, whereas the accrual method is a requirement for large business with revenue more than 5 million. Uniformity of accounting information is important when making decisions for or about a business. A hierarchy of sources provides structure for the generally accepted accounting principles (GAAP). Along with the hierarchy of sources, the Financial Accounting Standards Board (FASB) identify qualitative characteristics to distinguish between useful and inferior information and to ensure accounting information assists in decision making.
Qualities of Accounting Information
There are internal and external users of accounting information for decision-making. Internal users are managers within a company that use the information to plan, organize, and run the business, “These include marketing managers, production supervisors, finance directors, and company officers” (Kimmel, Weygandt, & Kieso, p. 6, 2007). External users can be investors, “make decisions to buy, hold, or sell stock,” creditors, “suppliers and bankers use accounting information to evaluate the risks of granting credit or lending money” (Kimmel, Weygandt, & Kieso, p. 6, 2007). External users also include taxing authorities, customers, labor unions, and regulatory agencies. For decision makers to make decisions using the information, they have available, a level of understandability must occur. Understandability allows users to see the importance of the information and its usefulness; the information must also be relevant and reliable.
Relevance
To predict an outcome by looking at past, present, and future events, accounting information must be relevant. It can also give a user feedback on past events, that allow the user to…...

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