Amy Santus RN BSN
October 3, 2011
Increasing pressures of cutting costs and improving the quality of care in health care services influences the management of the health care organization to implement the generally accepted accounting principles (GAAP) within their daily routines. Generally accepted accounting principles (GAAP) are a set of uniform accounting guidelines health care organizations follow to determine the financial position of an organization. According to Finkler, Kovner, and Jones (2007) the most common and important GAAP are as follows: (a) Entity concept, (b) Going-concern concept, (c) Matching principle and cash versus accrual counting, (d) Cost principle, (e) Objective evidence, (f) Materiality, (g) Consistency, and (h) Full disclosure. This paper provides a brief description as well as the intention behind each principle as well as how each principle relates to health care.
The entity concept indicates that a health care organization will remain financially sound and operate for an indefinite period. An entity can be an entire organization, but typically the organization is broken up into units or departments, each acquiring their own identity. Once the entity is defined, the resources of each specific entity should not merge with another, and the financial events should be solely indicative to the specific individual entity. The entity concept facilitates the management of the health care organization to record the spending of the occurring events.
The Going-concern concept assumes that the health care organization entity has continuity of life. This concept assumes the company will continue to carry on its objectives and commitments, and will continue business without liquidation in the foreseeable future. This is an important assumption of accounting, as it provides support for showing the value of assets in the balance sheet....