Five Accounting Concepts

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Recommended: Generally accepted accounting principles and auditing standards

Accounting in general has many terms that are important to know and understand when dealing in the financial realm. When looking at these terms and understanding how they are implied it is important to remember what the objective of businesses are: to earn a profit and remain out of bankruptcy. To better understand how a company can achieve these objectives we need to understand accounting’s terms and principles first. In order to do that we will look at five concepts that are important to Accounting: Generally Accepted Accounting Principles (GAAP), Contra-Asset Accounts, Historical cost, Accrual Basis vs. Cash Basis Accounting, and Accounting Standards Codification.

The Federal Accounting Principles Advisory Board (FASAB), defines generally accepted accounting principles as those that follow the hierarchy of sources used for guidance on such principles. First, is the FASAB interpretations; second, the FASAB technical bulletins; third, the technical releases of the accounting and auditing policy committee of the FASAB; and fourth, implementation guides published by the FASAB staff. “GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements” (Investopedia). “Companies are expected to follow GAAP rules when reporting their financial data via financial statements” (Investopedia). These principles are important to accounting because they set the standard of expectation for all publicly traded companies so as to ensure legality and justice is maintained throughout all financial transactions.

A contra asset account is defined as an account that has a positive or zero credit balance. Similar to a debit account having a debit balance, a contra asset account has a credit ...

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Averkamp, Harold. "What is a contra asset account?." AccountingCoach. N.p., n.d. Web. 23 Feb 2011. .

Bushman, Melissa. (2007, January 2). Cash basis versus accrual basis accounting. Retrieved from http://www.associatedcontent.com/article/108540/cash_basis_versus_accrual_basis_accounting.html?cat=3

FASAB. "Generally Accepted Acounting Principles." Federal Accounting Standards Advisory Board. N.p., n.d. Web. 23 Feb 2011. .

WEBCPA, Staff. (2009, July 1). Fasb debuts accounting standards codification. Retrieved from http://www.accountingtoday.com/news/FASB-Debuts-Accounting-Standards-Codification-50884-1.html

Investopedia, . "Generally Accepted Accounting Principles." Investopedia ULC. N.p., 11 August 2010. Web. 23 Feb 2011. .

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