Generally Accepted Accounting Principles Relating to Health Care The Concept of GAAP Generally Accepted Accounting Principles (GAAP) are fundamentally regarded as a standard framework and guiding principles of financial reporting, as well as accounting process…
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The standards relating to GAAP have been recognized to be executed by different organizations while compiling their respective financial reports. In general, GAAP is a broadly used accounting procedure of reporting and recording financial information. The accounting standards that have been outlined within the GAAP are “generally accepted” by the Governmental Accounting Standards Board (GASB). The mission of GASB is to build and develop the financial reporting standards at the level of local governments and state units (Taylor, 2008). Purpose of GAAP The main purpose of GAAP is to represent the financial report that can significantly reflect the financial position of a particular organization. GAAP provides effective support to the organizations in terms of enhancing their capability within the framework of long-term financial decision making process that eventually enables the organizations to accomplish their predetermined financial objectives. Moreover, the other imperative purpose of GAAP is to enhance the performance of the business organizations through properly maintaining their financial records (Office of Financial Management, 2012). From the perspective of healthcare industry, GAAP performs a major role through delivering transparent financial statements that encompasse all the financial activities of the healthcare organizations. An effective practice of GAAP tends to facilitate the modern healthcare firms and forecast their future financial performance. Proper implementation of GAAP in the financial reporting process can enable an organization to attain competitive position within the growing healthcare industry (Office of Financial Management, 2012). Oversight of Use of GAAP The different standards or the accounting principles belonging to GAAP can be considered as the set of guiding principles that provide effectual accounting solutions for any organization while preparing financial statements. In order to gain a superior oversight regarding the use of GAAP, it has been identified that the accounting principles concerning GAAP tends to comply with traditional and rule-based methods in representing the financial statements of various organizations. With regard to asset valuation process, GAAP tends to follow historical cost of the assets rather than focusing on fair value of the assets that depicts fair treatment of the items in the financial statements (Rascona, 2011). Description of Each Principle and the Intention behind the Principles of GAAP GAAP mainly contains five types of principles that ensures towards establishing a well-structured financial report which determines the financial stability of a specific organization. The various principles of GAAP relating to healthcare organizations have been discussed hereunder. Going Concern Principle The principle of going concern represents the fact that the healthcare organizations will tend to operate their respective business functions in such way so that they can prepare a balanced and well-structured financial statement. Identifying any types of uncertainties in the business processes it has to be noted that going concern needs to be updated in financial reports through rationalizing different standards or the accounting principles belonging to GAAP (Financial Reporting Council, 2009). Matching Principle The matching principle of GAAP defines as a process of recording each item of expense in relation to revenue that must be recorded in
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