Generally Accepted Accounting Principles

Topics: Generally Accepted Accounting Principles, Depreciation, Finance Pages: 4 (1226 words) Published: March 30, 2013
Generally Accepted Accounting Principles
Stephanie R. Stewart
September 24, 2012
Anne Harney Finlon

Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP) are important ideas to understand when discussing finances of any kind. It is important for all nurses, especially those in management roles, to understand financial concepts and be involved in the budgetary process. This paper will help to create an understanding of GAAP, the purpose of the principles, and how they relate to the health care industry today. Every profession tends to have a language specific to the profession or occupation. The financial world is not immune to this language subset. The term Generally Accepted Accounting Principles (GAAP) provides a dictionary for the language used in the finance world. GAAP also allows for consistency and encourages integrity with financial reporting. According to Finkler, Kovner, and Jones (2007), this set of principles involves eight key rules "established by the Financial Accounting Standards Board" (p. 104). Additionally, accountants are compelled to denote if the financial records being examined are in accordance with GAAP (Finkler, Kovner, & Jones, 2007). Therefore, it is important for health care entities to follow the GAAP concept and ensure adherence to these eight key tenets. While some sources and authors will only list five or six principles, Finkler, Kovner, and Jones discuss eight rules as part of GAAP explanation. These principles "include the following: * Entity concept

* Going-concern concept
* Matching principle and cash vs accrual accounting
* Cost principle
* Objective evidence
* Materiality
* Consistency [and]
* Full disclosure (Finkler, Kovner, & Jones, 2007, p. 104). Each of these principles has a general intent and is important for consistency in financial reporting. The entity concept defines what group or person is being discussed...
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