Gaap

Running head: General Accepted Accounting Principles General Accepted Accounting Principles Nahir Perez-Montero University Of Phoenix Financial Resource Management HCS/571 Debbie Vaughn June 06, 2011 General Accepted Accounting Principles Introduction Generally Accepted Accounting Principles, or as commonly known by accountants, GAAP is a term given to a set of standards and guidelines with the intent to facilitate organizations with clear financial accounting information in their specific jurisdiction. These so-called, standards, conventions, and bylaws are used by accountants for record keeping and create transactions, and to prepare pertinent financial statements required by other organizations or individuals of interest (Cleverly, Song, & Cleverly, 2011). The GAAP in accounting are simple and can be used by different organizations where many of their accountants prefer to use them because they are very detailed and provide useful guidance in the production of results and consequently transactions and financial statements. It is important to mention that these accounting principles have been developed by individuals in the accounting profession and guarded by the Securities and Exchange Commission (SEC) and the Governmental Accounting Standards Board (GASB) establishes its requirements for state and local governments. The big question to be considered in relationship with healthcare is if the legal status of a healthcare organization be determined by government financial and reporting requirements, or should healthcare itself operate it, and determine the accounting and reporting requirements on its own. The set of GAAP fall under specific definitions and are strategically created with intent behind each of them (Edwards and Barrack, 1999). There are other principles and sometimes called assumptions but for the purpose of the paper below are the most commonly used. 1. Regularity: This principle conforms to enforced laws and rules. The law must be fulfilled accordingly. This concept is also part of the ethics used in health care and relies regularity and adherence to this principle. 2. Consistency: This means that accounting methods are always to be similar and follow the exact same way. This is with the intent to make the comparisons that are made in different periods and by different companies that use GAAP meaningful. One of the most political concerns involves healthcare and its reform. Financial information has become more significance over recent years because everyone desires to keep track of the financial implications of what financial data reveals. 3. Sincerity: Reports should reflect sincerely the reality of financial status of the organization. This principle must be verifiable and objective. This principle is a given. The true "as is" and not try to make things look accurate and attractive than they really are, recording what is certain. Principle of sincerity is very important in financial management in healthcare because it points out and reflects in good faith the reality of the healthcare organizational and its financial status. 4. Permanence of methods: This means to allow the comparison and coherence of the information by the company to be published. No hidden agendas, it should be a full disclosure. This principle in healthcare makes sure that the organization’s financial information is coherent. It also compares results from previous fiscal period. 5. Non-compensation: Financial information should not seek to compensate a one item for another. For example, accounting records only include quantifiable transactions and must be recorded utilizing a currency that is stable. In the United States dollars is the currency used for this purpose. Healthcare is just as responsible to financial management show in detail its financial information. It is not acceptable to show a status or practice of compensation revenue with expense or debts with assets. 6. Prudence: This principle indicates that relevant information is significant to help in making decisions about the company's previous results, how is doing now and what outlook is projected for the future to be able to make informed decisions for the organization. This must be done is a timely manner, which brings up the aspect of time. A time period must be established so accountants can record and report transactions and statements accurately. This principle plays an interesting role in health care because medical decisions must be made in the clinical setting that requires the priority of knowledge effects of treatments. This means that evidence-based knowledge must conform under prudency, which is crucial to health care decision making. 7. Continuity: With the assumption that the business will continue its operations, a less optimistic estimate must be elected from estimates and to make it more equal or likely. 8. Periodicity: Each accounting entry should be applicable and accordingly cover specific periods. This has the intention to account for specific and entire periods rather than a sole transaction. In healthcare staff has the responsibility for medication management, which it may mean to have a close relationship with pharmacy. As managers healthcare staff must assume responsibility to participate in the financial implications to the organization. 9. Full Disclosure/Materiality: This principle states that all information and values must be disclosed and accounted for unless there is no effect for accountants as far as financial information is concerned. In healthcare, financial statements must also be detailed and an overall summary should be provided. A report should categorize the items and record it relevance. 10. Utmost Good Faith: Insurance policies relay on all the information related to the organization. The insurer must disclose everything before the policies become acquired. The intention is to have all information disclosed before making a decision. This is also relevant in the healthcare industry means that the organization will not withhold any information required in its financial; in simple words no cheat, misinformation, or deprivation important information, which is to be reported. The healthcare industry follows the GAAP hierarchy with the exception that the reporting of its financial information and conventions are based on whether they are not-for-profit, profit, university associated, and others (Duis, 1993). Conclusion It is only when individuals understand the basics and significance of financial accountability using the GAAP that, some may realize that there are conventions, procedures, and rules that define accepted accounting practice at a particular time. These are broad guidelines to generally to be applied and also practice in detail, and that these procedures are created to provide standards by which to measure financial accountability of any their organizations. Most significantly are the frameworks used to adequately address the specific needs of healthcare institution financial department (Duis, 1993). Keeping track of individual band-aids or pieces of gauze is immaterial and perhaps burdensome to healthcare organizations’ accounting department, and, excessive, but there is no definitive measure of materiality, record keeping must practice a sound judgment because several thousands of dollars may not mean much to an organization as such as Saint Mary’s, but it may be quite significant to a not-for-profit organization as Denali Center/FMH. concerning how to maintain a well-staffed facility, a clear understanding also provides healthcare providers with a solid a foundation for why organizations include the benefits and costs of nursing staff, retention and turnover, estimating nursing a valuable to the healthcare industry (Flinker, Kovner, & Jones, 2007). Bibliography Cleverly, W. O., Song, P. H.,and Cleverly, J. O. (2011). Essentials of health care finance (7th ed.). Sudbury, MA: Jones and Bartlett Learning. Edwards, James Don and John B. Barrack (1999). Reaching International Accounting Standards. Economic Reform Today. Finkler, S. A., Kovner, C. T., and Jones, C. B. (2007). Financial management for nurse managers and executives. (3rd ed.) St. Louis, MO: Saunders Elsevier. Terry A. Duis, (2010). The need for consistency in healthcare reporting. http://findarticles.com. BNET, U.S. P