Generally Accepted Accounting Principles Essay
Generally Accepted Accounting Principles
The mutual set of accounting criteria used to develop medical centers financial statements are known as generally accepted accounting principles (GAAP). GAAP are a mixture of respected criteria created by Securities and Exchange Commission (SEC) and accountants. The SEC has authority granted by The Securities Act of 1933 and the Securities Exchange Act of 1934, to determine reporting and disclosure requirements. Oversight is the general functions of the SEC, granting the Governmental Accounting Standards Board (GASB) to determine the standards.
Generally accepted accounting practices are required for accountant to follow and medical centers to use so medical centers and provide investors with a minimal level of dependability for financing determination. GAAP provides detailed information concerning the medical center fiscal returns, detailed balance and outstanding debt. GAAP guidelines are expected to be upheld by medical centers when giving an account of their economic figures through financial declarations (Finkler & Ward, 2006). Going concern principle. Financial statements must be prepared with the belief that the medical center will continue operation indefinitely.
Disclosure of pending cease of patient care delivery must be noted in financial statement (Finkler & Ward, 2006) Principle of conservatism. Certified public accountants have an obligation to document business purchases that necessitate estimation based on their sound judgment. The total medical equipment productivity time frame and outstanding accounts receivable are illustrations for the use of estimation. In financial data reporting, auditors adhere to conservatism rules, which demands lower appraisal be selected when one or more appraisals are taking in consideration.
For example, when the restoration department has reported a five -percent rate return for new MRI machine for the previous three fiscal years, but the medical centers production department claims the reported profit value is inconsistent and there is an expectation that fewer than three percent of the MRI machines will need repair service during the following year. Since there is a discrepancy, the production department will need to presents undeniable proof to authentication the appraisal, the medical center auditor has a duty to adhere to the conservatism principles and prepare for the ive-percent rate return.
Losses and costs are documented when they are credible and equitably estimated. Profits are documented when achieved (Finkler & Ward, 2006). Matching principle. The medical center expenditures for providing safe patient care should be documented with the corresponding fiscal year in which the income was produced. Documented in the same fiscal year as the income they help to generate. An illustration of this particular cost is the cost of products sold in the medical center, salaries paid to staff.
It is consider when patients are admitted to the medical center and the supplies used to provide safe quality care. Revenue is recognized when reimbursed by Medicaid and Medicare (Finkler & Ward, 2006). Cost principle. The dollar amount deducted from the budget to purchase land, medical equipment, and supplies. Assets are documented at price purchased, which is equivalent to the price paid to gain acquisition. When a medical centers assets such as property or office structures increase in worth each fiscal year, reappraisal in not required for financial reporting purposes (Finkler & Ward, 2006).
Objective evidence. For financial reports to be valuable, they must contain information that is pertinent, trustworthy, and organized in a consistent manner. The cost information provided is evidence-based. This means internal and external users could all agree when the medical center reports they purchased telehealth technology for 1. 5 million and they can produce evidence in a form of bank statements or detailed receipt from vendor proving payment, this is reliable information that is verifiable and objective (Finkler & Ward, 2006).
Materiality principle. Obligates the preparer of the financial report to correct significant errors that otherwise would cause an individual to make a different decision if provided with correct information. When time approaches to approve the budget for additional telehealth equipment, medical center executive may not approve, if they were aware that the program is not beneficial and several telehealth monitors were sitting in storage areas with the local facilities. Insignificant errors may be ignored (Finkler & Ward, 2006). Consistency.
Medical facilities should use the same accounting methods each fiscal year. Consistency make available significant associations to be achieved among separate fiscal years and among the fiscal reports of separate establishments that employ the similar accounting practices. If the medical center changes their accounting method, the accountant must disclose the change in the financial report (Finkler & Ward, 2006). Full disclosure principle. Financial statements usually make available data about the medical center previous performance.
However, imminent litigations, unsettled debt, or additional circumstances that have the potential to produce considerable negative influences on the medical centers economic status are also required to be disclosed in financial statements. (Finkler & Ward, 2006). In conclusion when medical centers are in compliance with GAAP this will help preserve creditability with creditors and investors because it restore confidence with external customers that the medical center financial reports precisely depict its financial standing.
Subject: Financial statements,
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 15 February 2017
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