Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 311

Accounting Terminology

Lesson 12.3

Chapter 12

Lesson 12.2 Accounting Framework

Accounting is used to make judgments about a company’s financial position. Because accounting is

considered a universal language, all businesses must use the same reporting practices to record financial

information. In order to have consistent recording methods, our accounting system is based on a basic set

of principles called United States Generally Accepted Accounting Principles (US GAAP). These principles

have evolved over time from many sources.

The Securities and Exchange Commission (SEC) has the authority to establish US GAAP. The SEC, however,

has allowed a series of private organizations to determine US GAAP. Currently, the organization that has the

authority to set accounting standards is the Financial Accounting Standards Board (FASB). FASB is a non-

governmental agency funded by the accounting profession and contributions from business organizations.

Certified Public Accountants

As you learned in Unit 1, Certified Public Accountants (CPAs) act as advisors to individuals, businesses, fi-

nancial institutions, nonprofit organizations, and government agencies on a wide range of financial matters.

For example, many individuals turn to CPAs for help in preparing their taxes and planning their personal

finances. They also often rely on CPAs for assistance in building college funds, planning for retirement, and

creating estate plans.

On the other hand, business owners and managers have traditionally depended on CPAs for auditing ser-

vices and advice on developing effective accounting systems, maximizing operating results, and resolving

management issues. In addition, CPAs frequently assist businesses in designing and installing data pro-

cessing/management information systems.

Student Guide