mod 1 CA - Touro University International ACC 501...

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Touro University International ACC 501 – Accounting for Business Decision Making Case Assignment: Terms and Statements Module 1 Coordinating Professor: Dr. Paul Watkins Core Faculty: Dr. Robert Muretta
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Introduction The purpose of this case assignment will be two-fold. The first portion will consist of discussion of basic accounting terms expanding on terms discussed in this course. Additionally, there will be a discussion on the organization of the 2006 financial statement of three large companies. Terminology Discussion (GAAP) All professional organizations have ethics and standard that they must adhere to. In accounting the term “generally accepted accounting principles (GAAP) has a specific meaning. The American Institute of Certified Public Accountants (AICPA) grants the “The Federal Accounting Standards Advisory Board the authority is the body that establishes accounting principles for federal entities.” 1 Wikipedia defines GAAP as the “standard framework for financial accounting. It includes the standards, conventions, and rules accountants follow in recording and summarizing transactions and in the preparation of financial statements” 2 The principles have become such an accepted practice that the Securities and Exchange Commission requires compliance in financial reporting by all publicly-traded companies. The GAAP rules that apply to the United States do not hold up in the international markets of the world, therefore there are International Financial Reporting Standards as well. There are even published GAAP for both state and local governments. GAAP is based on four basic assumptions (economic entity assumption, going concern assumption, monetary unit assumption and periodic reporting assumption), four basic principles (historical cost principle, matching principle, full disclosure principles, and revenue recognition 1 http://www.fasab.gov/accepted.html 2 http://en.wikipedia.org/wiki/US_GAAP 2
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principle), and four basic constraints (cost benefit relationship, materiality, industry practices and conservatism). 3 (HISTORICAL COST) Historical cost is a principle in accounting that requires financial statement items be based on original cost. This principle “dictates that most assets and liabilities’ should be recorded at their historical” 4 or purchased price. This is a sharp contrast to the GAAP in the United Kingdom which allow firms to revalue assets based upon appraised market value. Historical cost is one of the four main principles in the GAAP. An example of this principle would be if I purchased my manufacturing warehouse 10 years at $210,000 and today it is appraised at a value of $425,00, I would be bound to record the original or “historical cost” on my balance sheet. Normally for is not a problem since most businesses are using their assets to conduct normal day to day activities. When this same company offers an asset for sale, a fair
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mod 1 CA - Touro University International ACC 501...

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