The paper "Generally Accepted Accounting Principles and Their Development" is a worthy example of coursework on finance and accounting. Financial accounting information is crucial to everyone interested in maintaining healthy surroundings when it concerns capital. Financial information, therefore, needs guidance. This guidance comes in the form of principles that aid in ensuring this information is legitimate, and up to standards. In this case, Generally Accepted Accounting Principles are preferred. These principles are developed and applied by accountants in everyday dealings to ensure financial information is credited. As a set of widely accepted rules, the GAAP is responsible for overseeing the correct response toward financial information in countless organizations and companies (Bragg, 2011).
This paper will examine the GAAP and how they are developed. Also, it will discuss the business entities while comparing and contrasting their characteristics. Definition of GAAP and their development The Generally Accepted Accounting Principles are a set of guidelines that govern the reporting of financial information. This is in many organizations and companies as they offer investors consistency in the reporting and compiling of financial statements (Price, Haddock & Farina, 2012).
The principles aid in covering revenue recognition, and measures outstanding shares. Through this set of principles, it is easier for financiers and users of financial information, to make recommendations and conclusions based on the information provided. During the development of the principle, some stages are involved. In the first stage, the Financial Accounting Standards Board issues a discussion memorandum. FASB is responsible for giving authority to this set of principles. In the next stage, respondents give their sense on the discussion memorandum to the FASB. These respondents include the SEC, Public Accounting Firms, and the AICPA. In the third development stage, the governing body issues an exposure draft (Price, Haddock & Farina, 2012). This draft gives the respondents an avenue to voice their concerns over the proposed guidelines.
It is in this stage the respondents offer suggestions to make the principles better, and more efficient. In the next stage, the FASB gets responses from the respondents and other interested parties on the exposure draft. In the last development stage, the governing body offers a statement on the principle (Price, Haddock & Farina, 2012).
The development of these principles must include discussions to allow for proposals and advice to take place. This is to allow for transparency. Characteristics of the three main business entities There are three main business entities present today. These are the sole proprietorship, partnership, and corporations. In a sole proprietorship, the trade is owned by a single person. They are bound legally by the entity and are responsible for the debt and tax issues that come with the business. In a partnership, the trade is maintained by two or more individuals bound together by a partnership agreement.
They are, thus; responsible for the debt and tax issues that arise from the business. These are shared equally depending on the share each of them brings into the partnership. Corporations are privately or publicly owned businesses. They are separate from their owners and possess the freedom to carry out operations as a single entity (Price, Haddock & Farina, 2012). In terms of liability, sole proprietors take responsibility for all the risks involved. In a partnership, the partners share the risks jointly as the agreement dictates.
Incorporations, stakeholders only face the risk of loss depending on the amount of capital they invest. Ending the business may be the death of the sole proprietor of the business, or as a personal decision. In a partnership, the demise of a partner may lead to the closing of the business, or the end of the partnership agreement. However, for corporations, it may continue indefinitely because of the high number of people involved. If it goes bankrupt or stakeholders choose to liquidate, the business may end (Price, Haddock & Farina, 2012). In conclusion, the implementation of accounting principles should be for global use.
Accounting information should protect investors and the choices they make about firms and businesses. This may ensure everyone is content with the use of accounting information, as they benefit from the implementation of acceptable accounting guidelines (Lee, 2007).