Introduction, Review of Accounting Process and Financial Statements

Topics: Generally Accepted Accounting Principles, Balance sheet, Income statement Pages: 6 (2050 words) Published: May 24, 2011
Introduction, Review of Accounting Process and Financial Statements

This paper explains different types of accounting phrases and how they directly affect the accounting field. Phrases which are included and defined in the paper are Generally Accepted Accounting Principles, Contra-Asset Accounts, Historical Cost, Accrual Basis vs. Cash Basis Accounting, and Accounting Standards Codification. Definitions and examples of these terms are included as well as explanations of how they are important to financial statements. The financial statements of Samsung, Lockheed Martin and RTL Group will also be examined. Their financial data will be dissected in order to understand their success and highlight their operating activities. Important facts about each organization will be displayed and details on researching information on each company’s many locations will be revealed.

Introduction, Review of Accounting Process and Financial Statements

There are many different terms that are important to the field of accounting. Some of the terms are used to understand financial statements, while others are used to define different types of financial standings and explain accounting principles. All of the terms are important to the field and offer support to investors and organizations alike in understanding financial concepts and practices. These practices are put to use and are frequently evaluated by financial specialists and the Financial Accounting Standards Board (FASB). explains Generally Accepted Accounting Principles as “The common set of accounting principles, standards and procedures that companies use to compile their financial statements. They are a combination of authoritative standards and the commonly accepted ways of recording and reporting accounting information.” Essentially, they are a set of procedures and guidelines developed to ensure everyone prepares and interprets accounting reports and financial statements the same way. These practices are important because they give a sense of normalcy to all organizations and set an even standard to which they must all comply. They define standards and principles that many organizations would have difficulty orchestrating on their own. continues, “GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements.” GAAP is important to financial statements because the statements easier to understand if the same or similar formats are used in all organizations. For investors, creditors, and accountants dealing with multiple accounts daily, having a consistent format allows fluency and consistency in daily tasks. defines contra-asset accounts as accounts which offset other accounts. For example, a contra-asset account has a credit balance and offsets the debit balance of the corresponding asset. It is also defined as a balance sheet account in the financial statements that offsets a related asset account. For instance, the contra asset account "Allowance for Doubtful Accounts" is deducted from the asset "Accounts Receivable" to arrive at a net amount which is referred to as net or book value.  Contra asset accounts can also be explained as accounts that accumulate a balance that is subtracted from another account, or a negative asset account. One example of a non-current asset would be machinery that has depreciated. The depreciated amount is represented in the accounts as a contra asset ( Contra asset accounts are important to financial statements because they justify all expenses and allow them to be deducted from various accounts. defines historical cost as the original cost of an item at the time of a transaction. The...
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