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Chapter 1: Question 12Q (page 22)

If you had to explain or define “generally accepted accounting principles or standards,” What essential characteristics would you explain in your explanation?

Short Answer

Expert verified

Characteristics of generally accepted accounting principles include:

  • Generally Accepted Accounting Principles (GAAP) possess “substantial authoritative support.”
  • It is identified by a large group of accounts practitioners and other members of the business and financial company.
  • Only business transactions are to be included in the financial statements as per the business entity concept.

Step by step solution

01

Meaning of Generally Accepted Accounting Principles (GAAP)

Generally accepted accounting principles, commonly known as GAAP, refer to the rules, conventions, and procedures required to define accounting practice in any business situation. Including both comprehensive guidelines and relatively detailed exercises and procedures.

02

Characteristics of Generally Accepted Accounting Principles (GAAP)

The essential characteristics of generally accepted accounting principles include:

  • Generally Accepted Accounting Principles explain a criterion of how companies should assemble their financial statements to check consistency and uniformity in the firm.
  • Generally Accepted Accounting Principles state that firms are required to prepare their financial statements with the help of accrual accounting.
  • Opinions provided by the Accounting Principles Board (APB), bulletins issued by the committee on accounting procedure, as well as statements issued by the Financial Accounting Standards Board comprise “substantial authoritative support.”

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Most popular questions from this chapter

The objective of financial reporting places most emphasis on:

  1. Reporting to capital providers.
  2. Reporting on stewardship
  3. Providing specific guidance related to specific needs.
  4. Providing information to individuals who are experts in the field.

In what ways it felt that the pronouncements issued by the Financial Accounting Standards Board would carry greater weight than the opinions issued by the Accounting Principles Board?

For what purposes did the AICPA create the Accounting Principles Board?

Presented below are comments made in the financial press.InstructionsPrepare responses to the requirements in each item.

a) Rep. John Dingell, at one time the ranking Democrat on the House Commerce Committee, threw his support behind the FASB’s controversial derivatives accounting standard and encouraged the FASB to adopt the rule promptly. Indicate why a member of Congress might feel obligated to comment on his proposed FASB standard.

b) In a strongly worded letter to Senator Lauch Faircloth (R-NC) and House Banking Committee Chairman Jim Leach (R-IA), the American Institute of Certified Public Accountants (AICPA) cautioned against government intervention in the accounting standard-setting process, warning that it had the potential of jeopardizing U.S. capital markets. Explain how government intervention could possibly affect capital markets adversely.

CA 1-4 (Financial Accounting) Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial accounting.

Instructions

  1. Differentiate between financial accounting and managerial accounting.
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  3. What is the difference between financial statements and financial reporting?
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