Accepted Accounting Principles related to Health Care Essay

Accepted news report Principles related to Health C be - Essay ExampleThese rules were established by the Financial Accounting Standards Board. The first principle is the entity concept which is the group or governing body such as a hospital, medical school, or nurse home. Inother words, it separates the business from its owners and treats it as an frugal unit. Only assets, liabilities, and owners equity related to the group or organization atomic number 18 on one financial statement. If there are sub entities, the financial records of these entities are maintained separately. The second principle is the going - concern concept which is a presumption that the group or organization will be running in the future and will not be liquidated in the next 12 months. It is a very concept in case of healthcare business because hospitals, nursing homes, etc. which do not intend to stay in business the net realizable value of the asset may be not determine and could be sold at a much hig her price than they worth at the moment of sale. The third principle is the matching principle which is a combination of bullion accounting and accrual accounting. The matching principle and cash accounting states that revenue or expenses are recognize only when the organization suffers cash or pays cash. For example, medical equipments are recognized in the books of accounts only when the cash is paid out in entirety. The problem therefore is, all transactions that are not done on a cash basis and not done in the same accounting year are not recognized which gives a deceptive picture of what actually occurred a respective accounting year. On the other hand, when accrual accounting is done this gives the actual as to what occurred in that year. An example of this is if an organization provides care for a patient but does not receive reimbursement until the following year but the funds will be record on the year the patient was cared for. The fourth principle is known as the hist orical cost principle and states that the cost of a resource is what the organization pays to receive the economic need. Historical cost does not reflect the current market valuation of the asset. Therefore the problem with the cost principle for example is if a hospital pays twenty dollars for I.V. tubing in the current accounting year and the following year that same tubing costs thirty dollars. This will not signal a real account of the asset because of the variation in price. The fifth principle is called objective evidence. This principle states that evidence can be reported on financial statements that are objective in nature and can be analyzed, measured, observed and verified. An example of this is the cost of an EKG machine but the problem is the amount that it is worth as an asset. Do you use what the organization paid for it, what it is worth, or how much you could sell it for if the hospital did not need it? All of these are inwrought views and most accountants use th e value of what an asset is at cost. Fair market value is what the GAAP prescribes in recognizing the value of the asset. Materiality is the sixth principle which states that an organization will have accounting errors but the error will not be to an amount that items that would affect the direct value of the organization depending on several(prenominal) factors such as size of the organization It tries to conform to the situation wherein the information that might have been omitted in the financial statements does not bear any deflect on the economic decision of the users of these financial stateme