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Chapter 1: Q6RQ. (page 32)

Explain the purpose of Generally Accepted Accounting Principles (GAAP), including the organization currently responsible for the creation and governance of these standards

Short Answer

Expert verified

GAAP is created and governed by the FASB. The purpose of GAAP is to assist in financial reporting and create acceptable accounting practices.

Step by step solution

01

Explanation of FASB

Financial Accounting Standards Board (FASB) is the organization in the U.S. responsible for creating and monitoring the Generally Accepted Accounting Principles (GAAP).

02

Explanation of GAAP

GAAP is the leading book for the rule of accounting in the U.S. It exhibits the conceptual framework of the objectives, characteristics, and elements of the financial statements issued by businesses. It provides a detailed process or rule for presenting the information in the financial report, which is globally accepted.

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Most popular questions from this chapter

As the manager of a Papa Sean鈥檚 restaurant, you must deal with a variety of business transactions. Give an example of a transaction that has each of the following effects on the accounting equation: a. Increase one asset and decrease another asset. b. Decrease an asset and decrease equity. c. Decrease an asset and decrease a liability. d. Increase an asset and increase equity. e. Increase an asset and increase a liability

Elaine鈥檚 Inflatables earns service revenue by providing party planning services and inflatable playscapes. Elaine鈥檚 Inflatables is organized as a corporation. During the past month, Elaine鈥檚 Inflatables had the following transactions:

a. Received contributions of \(10,000 in exchange for common stock.

b. Purchased equipment for \)5,000 on account

c. Paid \(400 for office supplies.

d. Earned and received \)2,500 cash for service revenue.

e. Paid \(400 for wages to employees.

f. Cash dividends of \)1,000 were paid to stockholders.

g. Earned \(1,000 for services provided. Customer has not yet paid.

h. Paid \)1,000 for rent.

i. Received a bill for $250 for the monthly utilities. The bill has not yet been paid.

Indicate the effects of the business transactions on the accounting equation for

Elaine鈥檚 Inflatables. Transaction (a) is answered as a guide.

a. Increase asset (Cash); Increase equity (Common Stock)

Chloe Michaels plans on opening Chloe Michaels Floral Designs. She is considering the various types of business organizations and wishes to organize her business with unlimited life and wants owners of the business to not be held personally liable for the business鈥檚 debts. Additionally, Chloe wants the business to be a separate taxable entity. Which type of business organization will meet Chloe鈥檚 needs best?

Using the accounting equation Roland鈥檚 Overhead Doors reports the following financial information: Assets $ 45,800 Liabilities 17,220 Common Stock 27,460 Dividends 6,500 Revenues 8,850 Expenses ? Requirements 1. Use the accounting equation to solve for the missing information. 2. Did Roland鈥檚 Overhead Doors report net income or net loss?

Compute the missing amount in the accounting equation for each entity from the financial information presented:

Assets Liabilities Equity

Hair Styles \( ? \) 36,000 $ 36,000

Style Cuts 90,000 ? 48,000

Your Basket 101,000 68,000 ?

See all solutions

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