Essay Title: 


March 24, 2016 | Author: | Posted in finance, mathematics and economics

Part I . Search the course background information , the Internet and /or the Cyber Library . Discuss each of the following terms . Your discussion should expand on the definition as given in the course terms . Explain why this concept is important to financial statements

A . Generally Accepted Accounting Principles

Generally accepted accounting principles (GAAP ) are the accounting guidelines governing the preparation and presentation of financial reports . In for financial statements to adequately serve their purpose (that is , is to guarantee that the financial position of a firm is fairly and correctly presented to [banner_entry_middle]

interested parties , GAAP is used to ensure that the statements are relevant , reliable , comparable , and consistent . When a statement is audited in accordance to these principles , it can be considered (in most cases ) an accurate of a company ‘s financial health , its prospects , and its business objectives . Because GAAP is standardized and regulated , a company ‘s financial well-being can be reliably compared to that of other companies , and it ‘s place in the industry be discerned . In the United States , these principles do not come as a fixed set of rules set by law however , all companies engaging in public trading are required to use GAAP and most other firms follow it

B . Historical Cost

In accounting , historical costs represent an asset ‘s value in terms of its original cost at the time of purchase or acquisition (adjusted for accumulated depreciation or impairment , as opposed to its market value or projected value . Accounting using historical costs therefore requires the value of all items in a financial statement to be expressed based on the original cost . In the United States , this method is one of the foundations of traditional accounting as is still used by most companies today . Compared to the market-value principle , it is considered more reliable and bias-free . However , with the changing financial landscape and the widespread use of risk management strategies and other financial tools , the pressure to utilize fair market value is increasing

C . Accrual Basis vs . Cash Basis Accounting

Businesses can use two forms of accounting : cash and accrual . Different criteria are used in cash basis and accrual basis accounting to determine when to record income and expenses . Small businesses and organizations usually use the cash basis form of accounting , while big companies use accrual (most professionals and businesses are required by law to use accrual basis accounting . In cash basis accounting , income is recorded only when it is received , and expenses recorded only when they are actually paid out . Cash basis accounting is said to be a real-time recording of cash flow , however , the “cash ” in cash basis accounting is not necessarily literal “Cash ” may also mean payments received and made by credit card , check , etc . In accrual basis accounting on the other hand , income is recognized and recorded when it is earned , but not necessarily when it is received . Expenses are recorded when the obligation to pay them arises , but not necessarily when they are paid out

D . Current Assets and… [banner_entry_footer]

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