Health care organizations financial statements are the key tools to show the economic stability of an organization and guide leadership in making informed decisions. The Generally Accepted Accounting Principles (GAAP) is basic assumptions, and principles of accounting to determine the financial position of an organization. These principles offer consistency across health care organizations, and businesses maintaining track of the organizations fiscal returns, detailed balance, and outstanding debt.
Generally Accepted Accounting Principles help guide health care organizations through the economic framework of accounting (Finkler & Ward, 2006). Over the next several pages I plan to discuss the accounting principles that apply to most financial statements in health care. Going Concern Principle The going concern principle assumes a health care organization will continue to operate and remain solvent for an indefinite period. Discovering any uncertainties about the going concern has to be brought forward in the financial statements justifying the concern and the basis for the uncertainties.
In the event a health care organization is near the end of life accounting procedures should reflect the special needs of the organization in liquidation (Finkler & Ward, 2006). Conservatism Principle Today with economic uncertainties, the principle of conservatism gives consideration to the risks taken by health care organizations. This principle has the tendency to anticipate possible losses and not potential gains. Conservatism provides for a health care organization a business structure will be fair and reasonable (Cleverly & Cameron, 2007). Matching Principle
This principle requires examining the cost of doing business in the particular period. Some examples of such cost include supplies sold, salaries, and commissions earned. Matching principle also allows health care organizations the ability to depreciate equipment over years of use. By matching expenses and revenue in the same period will reflect results of operations in the financial statement fairly (Finkler & Ward, 2006). Cost Principle The accounting for purchases of a health care organization must be at cost price and not the fair market value at time of purchase.
An example, if an asset is purchases, entering the price paid for the purchases is considering be base for all future accounting. Object Evidence Principle This principle states accounting will be on the basis of objective evidence. If different people are looking at the evidence all will arrive at the same conclusion for the transaction. This means objective accounting entries on facts and not personal feelings, or opinions. The source document for transactions is usually the best objective evidence available (Finkler & Ward, 2006).
Materiality Principle Materiality principle allows accountants to use generally accepted principles for determining immaterial cost in a budget. An auditor tracking individual staples or gem clips is a mundane task; materiality permits certain transactions to be left out of the organizations financial statement because of the insignificance (Cleverly & Cameron, 2007). Consistency Principle Health care organizations using the consistency principle refers to the state of accounting rules, concepts, principles, and practices consistently.
When consistency is there, the results and stability of information from one period to the next auditors can easily make comparisons. If a change in accounting methods occurs the auditor must disclose the change in the financial report. Full Disclosure Principle The full disclosure principle requires health care organizations financial statements include information about pending lawsuits, incomplete transactions, tax disputes, company takeovers, or other entities, which may have imminent, and significant effects on the organizations financial statement.
This principle protects against unforeseen situations, and serves Auditors add footnote supplements in the financial statement to convey this information. Conclusion Developing a set of accounting principles to understand health care organizations financial statements are known as Generally Accepted Accounting Principles. Application of these principles must be consistent across the organization and any deviation from objectivity of users of the financial statement must have justification and disclosure.
Generally Accepted Accounting Principles compliance is a vital entity in organizations maintaining creditability with creditors, and stakeholders. Accounting principles reassure the organization’s financial reports accurately portray the financial position of the organization. Patients need to feel and see the unity, consistency, and transparency of health care organizations financial statement. Proper financial management shows strength in the health care organization and gives patients faith in the organization (Finkler & Ward, 2006).