Generally Accepted Accounting Principles
September 2, 2013
Generally accepted accounting principles (GAAP) is the term “used to describe the body of and requirements that shape the preparation of the four primary financial statements (Cleverley & Cameron, 2007).” These statements include the balance sheet, the statement of revenues and expenses, statement of cash flow, and statement in changes of net assets (Cleverley & Cameron, 2007). These statements track financial information and give a clear view of the information needed to assure the organization is financially healthy.
Health care uses both managerial accounting which tracks information for internal users and is less restrictive in preparation, and the principles of accounting which are more stringent methods of handling information. With principles of accounting both financial and managerial information is addressed.
Principles of Accounting
Cleverley and Cameron (2007) define six specific accounting principles.
1. Accounting entity
2. Money measurement
4. Cost valuation
5. Accrual accounting
6. Stable monetary unit
These principles are required for the preparation of audited financial statements.
Definition of principles
The accounting entity is the organization for which the financial statements are being furnished. In health care these entities typically do not involve individuals who are involved in the organization but rather only the organization’s financial transactions. The focus on the entity primarily involved assures the information is pertinent. If the entity is not clearly defined the information may be incorrect. The intent is to show a true picture of the entity’s financial situation.
Money measurement involves the measurement of economic resources including money, supplies, buildings, equipment, and ownership in other money producing interests. The intent is that money owned (assets) exceeds money owed (liabilities). Economic... [continues]
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