Balance Sheet and Accepted Accounting Principles

Topics: Balance sheet, Business, Generally Accepted Accounting Principles Pages: 2 (796 words) Published: October 26, 2014

Generally Accepted Accounting Principles Paper
University of Phoenix
Generally Accepted Accounting Principles
In a world of finances, Generally Accepted Accounting Principles seem to play a huge role. Generally Accepted Accounting Principles, or GAAP, is defined as the set of guidelines and rules which the financial firms adhere in their work. GAAP is useful due to the nature of being able to standardize the methods for the organizations to follow, and it establishes consistency from year to year in documents such as financial statements (Cleverly, Song & Cleverly, 2011). Healthcare is inevitably a business like any other according to the authors, and such healthcare organizations are sure to benefit from GAAP. Cleverly et al (2011), attempts to teach the reader the five of the principles in their work. They are as follows; Accounting Entity, Money Measurement, Duality, Cost Valuation, and Stable Monetary Unit. To apply these essential principles to healthcare organizational settings, it is important to study how each of the principles are defined. Principle 1: Accounting Entity

It is stated that accounting entity is an organization which is involved in economic activities with own assets and resources which should be accounted (Cleverly, Song & Cleverly, 2011). The authors also state that if the definition is not properly determined, evaluations might become even useless and misleading. Legal entity and accounting entity are different. This means that sometimes it is not apparent for the firms define the accounting entity, as other groups such as universities and government might be involved with the organization as well. Cleverly et al (2011) gives a great example of what could happen if not all aspects are accounted for. In healthcare organizations, the idea of fringe benefits such as bonus wages being paid in municipal basis might not be visible to the hospital’s accounts. This could possibly cause understatement of the expenses,...

References: Cleverly, W. O., Song, P. H., & Cleverly, J. O. (2011). Essentials of health care finance (7th ed.). Sudbury, MA: Jones and Bartlett Learning..
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