Generally Accepted Accounting Principles - Research Paper Example

According to Cleverly, Song, & Cleverly (2010), there are five generally accepted accounting guidelines or principles that are related to accounting for health, namely money measurement, valuation, duality principle, stable monetary unit, and accounting entity. In this paper a discussion will be made on these five generally accepted accounting principles related to health care. Money Measurement Money measurement principle calls for effective recording of all cash flows and revenues that are coming to the organization as well those leaving the organization.

Money measurement refers to the measurement of debt obligations and revenue resources accurately so that there is no discrepancy in the accounts of the health care institute. The intent behind this accounting principle is to secure and measure all the incoming and outgoing cash flows of a firm. It is essential to measure the movement of money inside and outside the organization because it is the most basic building block of accounting. This particular accounting principle is related to health care field as the flow of money in a heath care facility is quite fluid and money changes hand quickly in the health care industry. . The reason for valuing assets and costs at historical prices is that it is the only method that provides an objective value of assets and costs (Cleverly, Song, & Cleverly, 2010).

Other alternatives of valuation lack the objectivity which the historical cost valuation method provides. The intent behind this accounting principle is to provide an objective account of the values of acquisition cost of assets. In the field of health care this accounting principle is vital to calculate return on investment (p. 187). Also there is no second hand market of assets that are used in the health care industry and therefore it is difficult to estimate a market value for such assets.

This is the relevance of cost valuation accounting principle to the field of health care. Principle of Duality Principle of duality is a generally accepted accounting principle that refers to the basic equation that is commonly used in accounting (assets = liabilities +owner’s equity). The principle of duality also refers to the dual effect of every transaction. The effect every transaction is recorded in a way that assets equals the total liabilities and equity of the firm. This principle is forms a very basic pillar of accounting.

It provides guidance as to how to account different transactions. The intent of this principle is to make sure that transactions are recorded in way that satisfies the basics of accounting. The principle of duality is the basic pillar of accounting and therefore has relevance to accounting of health care institutions. The basic equation of assets, liabilities, and equity should always be balanced when accounting in the field of health care. In health care field transactions are regularly recorded and therefore to avoid any mistake it is essential to keep this