A major concept of intermediate accounting is the review of generally accepted accounting principles (GAAP) and learning the conceptual framework surrounding these standards. GAAP is a principles-based set of standards, meaning that companies have some latitude to create accounting policies and procedures to apply GAAP in their business operations. The concepts of regularity, consistency, sincerity, continuity and prudence are primary points of earning GAAP's conceptual framework. Accounting disclosures, assertions and materiality are also important concepts relating to GAAP.
Financial statements are typically the final output of a company's financial accounting department. The income statement, balance sheet and cash flow statement are the most common in the business environment. Intermediate accounting focuses on how these statements should present information that accurately portrays a company's financial health. Using financial ratios to break these statements down is another important feature of intermediate accounting. Ratios apply mathematical formulas to calculate indicators that provide benchmarks for assessing the effectiveness of a company.
Intermediate accounting also includes a variety of concepts and applications that are important to accounting students. These items include business income taxes, accounting for leases, retirement accounting, equity accounting and correcting errors or changes to accounting statements. Each individual concept and application is taught in a rudimentary manner since they may also reappear in a later accounting course. The purpose of introducing these items in intermediate accounting is to lay the foundation for future information in other accounting courses.