Accrual Basis and Cash Basis Accounting Paper
Running head: ACCOUNTING BASIS
Accrual Basis and Cash Basis Accounting Paper
University of Phoenix
ACC 290
Pretty much any and all businesses need feedback to see how they are doing and determine if any changes are necessary. This information comes as a result of accounting practices. This information is so crucial that a set of rules have been established to make sure that the information is not only properly represented but in a uniform that is easy to understand for all concerned parties. These rules are commonly known as generally accepted accounting principles or GAAP. For the accounting information to conform to GAAP standards, several characteristics need to be present: relevance, reliability, comparability and consistency. If the information is lacking any or all of these characteristics then it most likely cannot be trusted. For the information to be relevant is all about timing, the accounting information is only relevant if it can be used to make decisions for the benefit of the company. The main thing is that the accounting information is relevant if it can help predict future events or provide feedback as to the company’s standing. Reliability is as the word implies that the information can be counted on, for the information must be verifiable to ensure that it is mistake and error free. Also the information must be biased free or neutral, so that only the cold hard facts are represented and not the opinion of any outside parties. Comparability is that the information must be easily comparable between companies; General Electric needs to be able to compare their financial information with their top competitors like Siemens. So the data must be presented in a uniform way that makes for easy comparison, which is one of the main benefits of the GAAP in that it provides a guideline for the companies to use. And the final characteristic, consistency; this is where the company uses the same accounting methods year by year
Accrual Basis and Cash Basis Accounting Paper
University of Phoenix
ACC 290
Pretty much any and all businesses need feedback to see how they are doing and determine if any changes are necessary. This information comes as a result of accounting practices. This information is so crucial that a set of rules have been established to make sure that the information is not only properly represented but in a uniform that is easy to understand for all concerned parties. These rules are commonly known as generally accepted accounting principles or GAAP. For the accounting information to conform to GAAP standards, several characteristics need to be present: relevance, reliability, comparability and consistency. If the information is lacking any or all of these characteristics then it most likely cannot be trusted. For the information to be relevant is all about timing, the accounting information is only relevant if it can be used to make decisions for the benefit of the company. The main thing is that the accounting information is relevant if it can help predict future events or provide feedback as to the company’s standing. Reliability is as the word implies that the information can be counted on, for the information must be verifiable to ensure that it is mistake and error free. Also the information must be biased free or neutral, so that only the cold hard facts are represented and not the opinion of any outside parties. Comparability is that the information must be easily comparable between companies; General Electric needs to be able to compare their financial information with their top competitors like Siemens. So the data must be presented in a uniform way that makes for easy comparison, which is one of the main benefits of the GAAP in that it provides a guideline for the companies to use. And the final characteristic, consistency; this is where the company uses the same accounting methods year by year
References: Kimmel, P. D., Kieso, D. E., & Weygandt, J. J. (2010). Financial accounting, tools for business decision making. (6th ed.). Hoboken, New Jersey: John Wiley Publishers.