Generally Accepted Accounting Principles


Generally accepted accounting principles refer to standard structure of rules for financial accounting utilized in any known authority which are commonly known as the standards of accounting. They are principles that administer current practices in accounting and are always applied as reference to know the suitable treatment of transactions that are complex. Generally conventional accounting principles comprises the conventions, rules and standards accountants uses in summarizing and recording transactions, and in financial statements preparation. Financial accounting refers to information that needs to be collected and objectively reported.

Other people who must depend on such information have to be curtained that the given data are not biased and inconsistent. Because of this, financial accounting depends on given standards that are known as generally accepted accounting principles. In any financial statements reports the auditor need to show the reader if the information included in the statements conform to generally accepted accounting principle. Generally accepted accounting principle consists of a wide set of rules that accounting profession and commission for securities and exchange have developed (Warren & Reeve 2008).

Main body

According to Finkle & Ward (2006), the main reason of having generally accepted accounting principle is to guarantee consistency in accounting activities, both in a company and across all controlled companies. The SEC demands all companies held by the public to be at least audited yearly by a certified public accountant. The accountant guarantee the stockholders believe on the company’s financial information, because the information comforts with GAAP.

By arranging all financial information as required by GAAP, management can rely on the information and make strong corrections for each department for the prosperity of the company. Basing on the company’s financial reports Investors and lenders are able to make useful decisions. Stockholders and potential stockholders receive company’s financial health picture that is accurate. The stock in the market can be fairly priced. Criminal activities are always minimized (Cleverly & Cameron, 2007).

There are general rules and ideas that administer the field of accounting. These rules form the basis on which very full, complex, and legalistic rules of accounting are based. GAAP has three significant sets of principles, that is, the basic accounting rules and guidelines, the detailed principles and standards given by FASB and principle board of accounting, the common accepted industry activities (Needles, & Powers 2007)..

According Cleverly & Cameron (2007) the established principles presumes that an organization will maintain to exist for a long time to perform its goals and obligations. In case the organization’s financial stand is in a way that the company’s accountant believes that the organization cannot continue operating in the near future, the accountant need to unveil this assessment. This rule permits the organizations to postpone part of its prepaid costs until the coming accounting times.

Marching rule requires organizations to utilize the accrual foundation of accounting. This principle demands that costs be equalized with revenues. For example, the statement on sales commission’s costs should be prepared at a time the sales were made. Employees wages are reported as a cost in the week they worked and not in the week payments were made (Books LLC, 2010).

Finkle & Ward (2006), argue that revenue recognition principle is whereby revenues are realized as soon as commodity has been sold or service rendered, regardless of the time money will be received. Materiality principle is a rule that permits an accountant to violate another accounting rule if an amount is not significant. Professional ruling is required to choose whether an amount is immaterial or not significant.

Conservatism principle is used in case a scenario comes up where there are two recognized options for item reporting, the rule directs the accountant to select the option that will generate fewer net income. The rule does not guide accountants to be traditional. Accountants are required not to be biased and objective. This basic principle directs accountants disclose losses, but equivalent action for gains is not permitted (Warren & Reeve 2008).

Full disclosure rule, if known information is significant to an investor utilizing the financial reports the information should be unveiled in the report. It is due to this basic accounting rule that many footnotes pages are usually attached to statements of finance (Needles, & Powers 2007).


Healthcare bodies offer special audited statements in compliance with contractual accords. Assessors may create a negative assurance report on conformity with contractual accords in case the basic financial reports have been reviewed and not given an adverse view. Negative assurance implies that an audit showed nothing to propose that the hospital was unable to conform to its debt agreement. Positive pledge implies that the hospital match to its debt accord in the auditor view.

Hospitals may be demanded to give financial information in order to meet the particular demands of regulatory bodies. For example, a buy-sell accord might recognize that a plan of gross assets and liabilities of a hospital be obtainable. This appearance is different from full financial reports to the degree needed to meet particular demands for which the appearances were organized. Therefore the materiality dimension should be in line with appearance as a whole.

Reference List

Books, LLC (2010). Generally Accepted Accounting Principles: Income, Cash Flow, Equity, Net Profit, Cost, Appreciation, Historical Cost, Depreciation. New York: LIFE JOURNEY.

Cleverly, W.O. & Cameron, A. E. (2007). Essentials if Health Care Finance, 6th edition, Jones and Barlett Publishers, Sudbury, MA.

Finkler, S.A. & Ward, D.M. (2006). Accounting Fundamentals for Health Care Management, Jones and Barlett Publishers, Surbury, MA.

Needles, E. B., & Powers M. (2007). Principles of Accounting. New York: Cengage Learning.

Warren C. & Reeve J. M. (2008). Financial and Managerial Accounting. Edition10, London: Cengage Learning.