The Importance Of Financial Accounting

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The American dream is an ideology that allows each person regardless of race, gender, religion, sexual orientation, is to pursue their goals and live free under a government body that protects those principles. One goal or ‘dream’ that many Americans have is to work on one’s own terms. This concept can be achieved by owning your own business. At the center of a business whether it be a flower boutique, a mechanic shop, or a grocery store, at the center, every business will handle finances. This makes financial accounting practices are important. Financial accounting can drive a business to success and can show an owner where there is room for improvement. It also allows outsiders like investors and stock holders to know the health of a company…show more content…
GAAP is not a system with processes or steps for public companies. Instead it uses a set of 10 accounting standards or guidelines to expose a company’s health through its finances; allowing investors the opportunity to appreciate the asset. GAAP standards and protocol were created and are managed by the US Financial Accounting Standards Board (FASB). Since the inauguration of GAAP guidelines in the 1970s, the US Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants (AICPA) adopted GAAP as the authoritative standard for financial accounting. Both SEC and AICPA require the use of GAAP standards in all aspects of financial reporting and auditing for all public businesses. AICPA requires some privately operated businesses and some external auditors to utilize the same standard of reporting. The goal for any organization that wants to stay in business is to make money done by throughput. At the same time, investors want a snapshot of that through a cohesive and regulated financial report and economic statements containing trustworthy, succinct, and comprehensible…show more content…
This can be done because it is never assumed a business is considering liquidation based on the “going concern” principle. It is important to note that all statements must specifically define the reporting period. This assumption is what allows a business to hold off or put off certain prepaid expenses until forth coming accounting periods. Below are some of the main generally accepted accounting principles: • Business entity principle – businesses are separate from its owners • Cost principle – assets are recorded at cost and remain • Objective principle – financial information must be unbiased verifiable evidence • Going concern principle – businesses will continue endlessly into the future • Monetary unit principle – financial transactions must be recorded and reported in an acceptable unit of measure • Revenue recognition principle – revenue is recorded at the time it is earned Companies operating in the US for the most part rely on GAAP but there are instances where they will need guidelines to cover unique probabilities. Under GAAP, those probabilities are better known as contingencies or contingent

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