July 11, 2011
Generally Accepted Accounting Principles Generally Accepted Accounting Principles, or GAAP, is an accounting language of business used in health care facilities that have specific policies they must abide by when making choices for the direction of the institution. The Financial Accounting Standards Board, also known as FASB, developed these rules to guide them in recording and reporting financial information. Organizations use GAAP rules to report transactions. GAAP policies help to have consistency in business recording measures so comparisons are possible. The five principles of accounting include accounting entity, money measurement, duality, cost valuation, and stable monetary unit (Cleverly, Song, & Cleverly, 2011). In this paper, these concepts are discussed with an example for the relativity toward health care.
Accounting Principles “The set of GAAP fall under specific definitions and are strategically created with intent behind each of them” (Bradford, 2007). Accountants use an existing set of principles that rely upon underlying assumptions. Assumptions mentioned in this paper are GAAP and apply to practically all financial statements. In addition to these concepts, accountants must follow more methodological standards while organizing financial statements.
Accounting Entity The recorded location in the preparation of financial statements is accounting entity. Accounting entities can be nursing homes, hospitals, surgical centers, and home health agencies. When accounting entities differ, problems may occur. This can happen if a physician owns a private clinic and that clinic and personal resources operate using different accounting entities. The accounting entity must be concise and clear when defined or the financial information can be useless or misleading (Cleverly, Song, & Cleverly, 2011).
Money Measurement The money measurement concept is the principle that
References: Bradford, T. (2007, August). An Explanation of Generally Accepted Accounting Principles (GAAP). Accounting by Suite 101. Retrieved from http://www.suite101.com/content/what-is-gaap-a28142 Cleverly, W. O., Song, P. H., & Cleverly, J. O. (2011). Essentials of health care finance (7th ed.). Sudbury, MA: Jones and Bartlett Learning.