Explaining Basic Accounting Concepts and Business Structures Memo

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Explaining Basic Accounting Concepts and Business Structures Memo Shaunelle Orridge-Nkrumah University of Phoenix ACC 537 Financial Accounting Kimberly Cole August 4, 2008 Explaining Basic Accounting Concepts and Business Structures Memo To: New Business Owner From: Accounting Intern Date: August 4, 2008 Re: Basic Accounting Concepts and Business Structures To address the concerns that exist in starting a new business without an accounting system in place, this memo will provide general information for Generally Accepted Accounting Principles (GAAP), the difference between an accrual basis accounting system and just keeping track of cash flow, and the options for different business structures. According to the McGraw Hill Website, “The primary role of accounting information is to provide useful information for decision-making purposes; it is sometimes referred to as a means to an end, with the end being the decision that is helped by the availability of accounting information.” External users of accounting information are individuals or companies that have a financial interest in another company; however, are not involved in the daily operations for the company of interest. For this reason, information should be accurate and the governing bodies are in place to ensure this (McGraw Hill, 2005). General accepted accounting principles (GAAP) are established by various accounting bodies such as the Financial Accounting Standards Board and Securities and Exchange Commission. The general accepted accounting principles regulate and standardize preparation of financial reports which are distributed to the public. Companies are required to comply with GAAP when presenting external financial reports (Kieso, D. E., Weygandt, J. J., & Warfield, T. D, 2007). An accrual basis accounting system is different from just tracking incoming and

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