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Sources of GAAP

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Topic 1: Identify and describe the sources of generally accepted accounting principles. Identify source hierarchy and explain why the hierarchy is important.

Topic 2: Describe effective accounting information using the qualities of accounting information from your readings this week.

Topic 3: Describe how an accrual based accounting system is different from a cash basis of accounting.

Topic 4: Describe the types of business structures and the defining features of each structure.
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Solution Summary

This solution provides information related to first, generally accepted accounting principles - what they are, what are the sources and the source hierarchy of GAAP and why it is important. It then provided information related to the characteristics that are used to describe effective accounting information. The solution differentiates accrual based accounting from a cash basis system of accounting; and, it also provides information about the different types of business structures (that is, sole proprietorships, partnerships, limited liability companies and corporations) and the defining features of each. This solution is approximately 1000 words.

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Hello Student,

You have asked for help with four questions, hence I will seek to provide assistance in the same order given.

Topic 1

In order to answer this question, the first thing you may want to do is tell what are Generally Accepted Accounting Principles (GAAP); after which you may tell the sources of GAAP and mention information about the source hierarchy; then finally discuss why the hierarchy is so important.

Generally Accepted Accounting Principles may be defined as, "a common set of accounting principles, standards and procedures that companies use to compile their financial statements. They are a combination of authoritative standards (set by policy boards) and are simply the commonly accepted way of recording and reporting accounting information."

You may note in your response to this question that, "it is the council of the American Institute of Certified Public Accountants (AICPA) that has designated the Financial Accounting Standards Advisory Board (FASAB) as the body that establishes Generally Accepted Accounting Principles (GAAP) for federal reporting entities. As such, the FASAB is responsible for identifying the 'GAAP hierarchy' for federal reporting entities. The GAAP hierarchy consists of the sources of accounting principles used in the preparation of financial statements of federal reporting entities that are presented in conformity with GAAP and the framework for selecting those principles. The hierarchy lists the priority sequence of sources that an entity should look to for accounting and reporting guidance."

To add further to the information on the source hierarchy you may mention that, the sources of accounting principles that are generally accepted are:

i) FASAB Standards and Interpretations.
ii) FASAB Technical Bulletins
iii) Technical Releases of the Accounting and Auditing Policy ...

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