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Business Finance EBK HEALTHCARE FINANCE: AN INTRODUCTION

a. To discuss : The principle of accounting entity. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per accounting entity principle, each firm or organization is an economic entity and has a separate artificial identity from its owner or stakeholders. So, only the transactions pertaining to business are recorded and personal expenses are excluded from the financial statements of the firm. Example: Personal expense of CEO should not have been recorded in the financial statements of the company. b. To discuss : The principle of going concern. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Going concern assumption: As per this assumption, a firm will continue its operations for the foreseeable years. Irrespective of the fact, whether the owner is alive or not, a firm may continue to operate unless dissolved. In case of bankruptcy, a firm will discontinue its operations. Example: A business has been operating profitably since 25 years and is expected to continue operating for foreseeable future. c. To discuss : The principle of accounting period. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the accounting period principle, every business shall prepare financial statements for a specific period of time. It is generally referred to as an accounting year, financial year or reporting time period. Most companies tend to have calendar year as an accounting period. Example: ABC co. prepares its financial statements from 1 s t April to 31 s t March every year. So, the company has an accounting period from 1 s t April to 31 s t March. d. To discuss : The principle of monetary unit. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Monetary unit assumption: As per this assumption, US dollar is considered to be a king. The accountants are forbidden to log transactions in any other currency. It also grant accountants permission to ignore inflation when reviewing the statements considering that purchasing power of a dollar remains unchanged. Example: The owner of the firm did not want the accountant to review issues smaller than % of the profits. e. To discuss : The principle of historical cost. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Historical cost principle: As per this principle, an asset should be recorded at the acquired price. The acquired price is the price at which the asset was originally purchased i.e. the historical cost of an asset. Example: The company recorded the equipment (asset) at a price of $10,000 whereas it’s retail price was $13,000. f. To discuss : The principle of revenue recognition. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Revenue recognition principle: As per this principle, a revenue is recorded when it has been realized i.e. earned. Also, revenue is said to be earned after the goods have been delivered or services have been rendered, irrespective of the fact when cash is received. Example: A company recorded only $1,000 as revenue (out of $2,000 cash received) because services pertaining to $1,000 were rendered in current accounting period, the remaining was left to be performed in the next accounting year. So, the remaining $1,000 would be recorded as revenue in the next accounting period. g. To discuss : The principle of expense matching. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Matching principle: As per this principle, firms record the revenue and expenses related to such revenues in the same accounting period. This means the expenses incurred to earn particular revenue are recorded in the same accounting period. Example: 6,000 paid for the insurance wherein only insurance relating to $4,000 has been used in the current accounting period. Thus, $4,000 would be recorded as insurance expense, whereas remaining $2,000 would be recorded as ‘prepaid insurance’ under the head ‘assets’ in the balance sheet of the company. h. To discuss : The principle of full disclosure. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the full disclosure, a company shall report all the required information for financial statements that may be useful for the users of financial statements. Hiding important information may mislead the financial statements. i. To discuss : The principle of materiality. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the materiality principle, firms shall state the information that is relevant, understandable and timely for decision making process. Here, understandability states an individual shall have knowledge of business so that the reader can comprehend the information easily. Here, reliability states that a firm shall present the reliable financial statements to its users. The transactions that can be proven adequately shall be recorded in the statements. j. To discuss : The principle of cost benefit. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the cost benefit principle, the cost of providing information in financial statements shall not exceed the benefit earned to the users of financial statements. Companies spend a lot of money to gather information and include in financial statements when even half of it might not be relevant to the users of financial statements.

a. To discuss : The principle of accounting entity. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per accounting entity principle, each firm or organization is an economic entity and has a separate artificial identity from its owner or stakeholders. So, only the transactions pertaining to business are recorded and personal expenses are excluded from the financial statements of the firm. Example: Personal expense of CEO should not have been recorded in the financial statements of the company. b. To discuss : The principle of going concern. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Going concern assumption: As per this assumption, a firm will continue its operations for the foreseeable years. Irrespective of the fact, whether the owner is alive or not, a firm may continue to operate unless dissolved. In case of bankruptcy, a firm will discontinue its operations. Example: A business has been operating profitably since 25 years and is expected to continue operating for foreseeable future. c. To discuss : The principle of accounting period. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the accounting period principle, every business shall prepare financial statements for a specific period of time. It is generally referred to as an accounting year, financial year or reporting time period. Most companies tend to have calendar year as an accounting period. Example: ABC co. prepares its financial statements from 1 s t April to 31 s t March every year. So, the company has an accounting period from 1 s t April to 31 s t March. d. To discuss : The principle of monetary unit. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Monetary unit assumption: As per this assumption, US dollar is considered to be a king. The accountants are forbidden to log transactions in any other currency. It also grant accountants permission to ignore inflation when reviewing the statements considering that purchasing power of a dollar remains unchanged. Example: The owner of the firm did not want the accountant to review issues smaller than % of the profits. e. To discuss : The principle of historical cost. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Historical cost principle: As per this principle, an asset should be recorded at the acquired price. The acquired price is the price at which the asset was originally purchased i.e. the historical cost of an asset. Example: The company recorded the equipment (asset) at a price of $10,000 whereas it’s retail price was $13,000. f. To discuss : The principle of revenue recognition. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Revenue recognition principle: As per this principle, a revenue is recorded when it has been realized i.e. earned. Also, revenue is said to be earned after the goods have been delivered or services have been rendered, irrespective of the fact when cash is received. Example: A company recorded only $1,000 as revenue (out of $2,000 cash received) because services pertaining to $1,000 were rendered in current accounting period, the remaining was left to be performed in the next accounting year. So, the remaining $1,000 would be recorded as revenue in the next accounting period. g. To discuss : The principle of expense matching. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. Matching principle: As per this principle, firms record the revenue and expenses related to such revenues in the same accounting period. This means the expenses incurred to earn particular revenue are recorded in the same accounting period. Example: 6,000 paid for the insurance wherein only insurance relating to $4,000 has been used in the current accounting period. Thus, $4,000 would be recorded as insurance expense, whereas remaining $2,000 would be recorded as ‘prepaid insurance’ under the head ‘assets’ in the balance sheet of the company. h. To discuss : The principle of full disclosure. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the full disclosure, a company shall report all the required information for financial statements that may be useful for the users of financial statements. Hiding important information may mislead the financial statements. i. To discuss : The principle of materiality. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the materiality principle, firms shall state the information that is relevant, understandable and timely for decision making process. Here, understandability states an individual shall have knowledge of business so that the reader can comprehend the information easily. Here, reliability states that a firm shall present the reliable financial statements to its users. The transactions that can be proven adequately shall be recorded in the statements. j. To discuss : The principle of cost benefit. Introduction: ‘ Accounting Principles’ are universally accepted principles that the companies follow while performing accounting and reporting the financial data or statements. As per the cost benefit principle, the cost of providing information in financial statements shall not exceed the benefit earned to the users of financial statements. Companies spend a lot of money to gather information and include in financial statements when even half of it might not be relevant to the users of financial statements.

Solution Summary: The author introduces Accounting Principles, which are universally accepted principles that companies follow while performing accounting and reporting the financial data or statements.

EBK HEALTHCARE FINANCE: AN INTRODUCTION

EBK HEALTHCARE FINANCE: AN INTRODUCTION

6th Edition

ISBN: 9781567937428

Author: Gapenski

Publisher: YUZU

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Chapter 3, Problem 3.2Q

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Chapter 3 Solutions

EBK HEALTHCARE FINANCE: AN INTRODUCTION

Ch. 3 - Prob. 1.1STQ Ch. 3 - Prob. 1.2STQ Ch. 3 - Prob. 2.1STQ Ch. 3 - Prob. 2.2STQ Ch. 3 - Prob. 2.3STQ Ch. 3 - Prob. 3.1STQ Ch. 3 - Prob. 3.2STQ Ch. 3 - Prob. 3.3STQ Ch. 3 - Prob. 3.4STQ Ch. 3 - Prob. 3.5STQ

Ch. 3 - Prob. 4.1STQ Ch. 3 - Prob. 4.2STQ Ch. 3 - Prob. 4.3STQ Ch. 3 - Prob. 5.1STQ Ch. 3 - Prob. 5.2STQ Ch. 3 - Prob. 5.3STQ Ch. 3 - Prob. 6.1STQ Ch. 3 - Prob. 6.2STQ Ch. 3 - Prob. 7.1STQ Ch. 3 - Prob. 7.2STQ Ch. 3 - Prob. 7.3STQ Ch. 3 - Prob. 8.1STQ Ch. 3 - Prob. 8.2STQ Ch. 3 - Prob. 8.3STQ Ch. 3 - Prob. 8.4STQ Ch. 3 - Prob. 9.1STQ Ch. 3 - Prob. 9.2STQ Ch. 3 - Prob. 9.3STQ Ch. 3 - Prob. 10.1STQ Ch. 3 - Prob. 10.2STQ Ch. 3 - Prob. 11.1STQ Ch. 3 - Prob. 11.2STQ Ch. 3 - Prob. 12.1STQ Ch. 3 - Prob. 12.2STQ Ch. 3 - Prob. 12.3STQ Ch. 3 - Prob. 13.1STQ Ch. 3 - Prob. 13.2STQ Ch. 3 - Prob. 13.3STQ Ch. 3 - Prob. 13.4STQ Ch. 3 - Prob. 14.1STQ Ch. 3 - Prob. 14.2STQ Ch. 3 - Prob. 14.3STQ Ch. 3 - Prob. 15.1STQ Ch. 3 - Prob. 15.2STQ Ch. 3 - Prob. 16.1STQ Ch. 3 - Prob. 16.2STQ Ch. 3 - Prob. 3.1Q Ch. 3 - Prob. 3.2Q Ch. 3 - Prob. 3.3Q Ch. 3 - Prob. 3.4Q Ch. 3 - Prob. 3.5Q Ch. 3 - Prob. 3.6Q Ch. 3 - Prob. 3.7Q Ch. 3 - Prob. 3.8Q Ch. 3 - Prob. 3.9Q Ch. 3 - Prob. 3.1P Ch. 3 - Prob. 3.2P Ch. 3 - Prob. 3.3P Ch. 3 - Prob. 3.4P Ch. 3 - Prob. 3.5P Ch. 3 - Prob. 3.6P Ch. 3 - Prob. 3.7P Ch. 3 - Prob. 3.8P Ch. 3 - Prob. 3.9P

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