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Accounting: What is GAAP and FASB?

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(a) What are generally accepted accounting principles (GAAP)?

(b) What bodies provide authoritative support for GAAP?

(c) What elements comprise the FASB's conceptual framework?

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There is usually controversy in establishing standards in any field. In accounting the controversy as to whose rules should be follow and what should the rules be has been one that users of financial statements have had conflicting needs for information of various types. To meet these needs and to satisfy the reporting needs and responsibility of management, companies prepare a single set of general purpose financial statements. The users of these statements expect them to present fairly, clearly, and completely the company's financial operations.

The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. This common set of standards and procedures is called generally accepted accounting principles or GAAP. The term generally accepted means either that an authoritative accounting rule-making body has established a principle of reporting in a given area of that over time a given practice has been accepted as appropriate because of its universal application by several decision making groups. Although the principles and practices continue to be debated and criticized, most members of the ...

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This solution is comprised of a detailed explanation of what are Generally Accepted Accounting Principles (GAAP) and what bodies provide authoritative support for them. Also included is a detail explanation of what elements comprise the Financial Accounting Standards Board (FASB), what their mission is, and the three major types of pronouncements they issue. This solution also contains an attached MS Word document with more than 500 words of text.

See Also This Related BrainMass Solution

Financial Accounting Topics: Explain the meaning of GAAP and identify the key items of the FASB's conceptual framework. Identify the principles of internal control. Identify and calculate the tools of financial statement analysis. Evaluate the collection of accounts receivable.

Resources: Chapters 7, 8, and 15 of Financial Accounting

Chapter 7: Accounting Principles
1. (a) What are generally accepted accounting principles (GAAP)?
(b)What bodies provide authoritative support for GAAP?
2. What elements comprise the FASB's conceptual framework?

Chapter 8: Internal Control
E8-5 Listed below are five procedures followed by The Beat Company.
1. Several individuals operate the cash register using the same register drawer.
2. A monthly bank reconciliation is prepared by someone who has no other cash responsibilities.
3. Ellen May writes checks and also records cash payment journal entries.
4. One individual orders inventory, while a different individual authorizes payments.
5. Unnumbered sales invoices from credit sales are forwarded to the accounting department
every four weeks for recording.


Indicate whether each procedure is an example of good internal control or of weak internal control.
If it is an example of good internal control, indicate which internal control principle is being
followed. If it is an example of weak internal control, indicate which internal control principle is
violated. Use the table below.

Identify internal control weaknesses over cash disbursements and suggest improvements. (SO 2, 4)

Identify internal control weaknesses for cash disbursements and suggest improvements. (SO 4)

Indicate whether procedure is good or weak internal control. (SO 2, 3, 4)

Procedure IC Good or Weak? Related Internal Control Principle

Chapter 15: Financial Statement Analysis
BE15-1 You recently received a letter from your Uncle Frank. A portion of the letter is presented below.

You know that I have a significant amount of money I saved over the years. I am thinking about starting an investment program. I want to do the investing myself, based on my own research and analysis of financial statements. I know that you are studying accounting, so I have a couple of questions for you. I have heard that different users of financial statements are interested in different characteristics of companies. Is this true, and, if so, why? Also, some of my friends, who are already investing, have told me that comparisons involving a company's financial data can be made on a number of different bases. Can you explain these bases to me?

Write a letter to your Uncle Frank which answers his questions.
BE15-2 Drew Carey Corporation reported the following amounts in 2007, 2008, and 2009.

2007 2008 2009
Current assets $200,000 $230,000 $240,000
Current liabilities $160,000 $168,000 $184,000
Total assets $500,000 $600,000 $620,000

(a) Identify and describe the three tools of financial statement analysis.
(b) Perform each of the three types of analysis on Drew Carey's current assets.

Identify and use tools of financial statement analysis. (SO 2, 3, 4, 5)

BE15-11 The following data are taken from the financial statements of Morino Company.

2009 2008
Accounts receivable (net), end of year $ 550,000 $ 520,000
Net sales on account 3,960,000 3,100,000
Terms for all sales are 1/10, n/60.

(a) Compute for each year (1) the receivables turnover and (2) the average collection period. At the end of 2007, accounts receivable (net) was $480,000.
(b) What conclusions about the management of accounts receivable can be drawn from these data?

Evaluate collection of accounts receivable. (SO 5)

Show all calculations to receive credit.

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