Generally Accepted Accounting Principles (GAPP) is very important when it comes to the world of accounting. GAPP is important as it is a way to try to set a standard when it comes to accounting principles and can be used in the preparation of financial statements. The source hierarchy is important as it can help determine what literature would be needed for a specific accounting transaction to ensure that a company stays in compliance. There are four levels in the hierarchy with each being labeled by a letter (A, B, C, and D). Column A is considered the most authoritative and column D is the least. If a situation arises where multiple levels could be considered, then the highest level would be used.
There are two primary qualities that make accounting information useful for decision making. They are relevance and reliability. For the information to be relevant, the information must have the capability of being used to make a difference in a decision. The information must also be provided in a timely manner to be relevant as well. If the information is received after a decision has been met, it can be considered irrelevant, therefore, not meeting one of the primary qualities of accounting. The information must also be reliable. The information would need to be able to be verified, have faithful representation, and also be free of error a reasonable amount. This is very important. To be able to be verified, independent auditors would need to come up with similar results using the same methods the company does. To have faithful representation, the numbers would need to match what really did happen or what really did exist. And to be reasonably free of error and bias is exactly how it sounds. A company cannot choose information that would favor one party over another.
There are some differences between cash basis accounting and accrual basis accounting. The main difference is that cash basis accounting is prohibited under GAPP. With cash basis accounting, companies...