Generally Accepted Accounting Principles

1212 words 5 pages
Generally Accepted Accounting Principles
Stephanie R. Stewart
September 24, 2012
Anne Harney Finlon

Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP) are important ideas to understand when discussing finances of any kind. It is important for all nurses, especially those in management roles, to understand financial concepts and be involved in the budgetary process. This paper will help to create an understanding of GAAP, the purpose of the principles, and how they relate to the health care industry today.
Every profession tends to have a language specific to the profession or occupation. The financial world is not immune to this language subset. The term Generally Accepted
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The rules of cost principle and objective evidence are very closely related. The cost principle can be difficult to determine without taking into consideration the objective evidence available to the accountants. Cost principle is essentially the amount paid by an entity to purchase the item. Yet, with many items accountants must take into consideration the depreciation or which will occur over time. This is especially true with buildings and other very expensive items expected to be used for many years. Shady Acres may have paid three million dollars for the land and building five years ago, but because of the real estate crisis the cost principle is now only two million dollars. Due to objective evidence the cost principle will never rise higher than the cost reported on the accounting report even if there is appreciation present.
Since cost over time can fluctuate based upon the market and the assessor, it is important to include the rule of objective evidence within this set of accounting principles. To decrease forecasting of cost, accountants list "the value of most assets at their cost" (Finkler, Kovner, & Jones, 2007, p. 106). In the previous example, Shady Acres was acquired for three million dollars. If the real estate market rebounds next year and the building appreciates in value, accountants will still use the rule of objective evidence and not set the cost above that which was paid to purchase the building.
The sixth component


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