accounting

ACCOUNTING

2006

Accounting

Introduction

By definition , the Financial Statement can be defined as a tool of evaluation . In light of the shareholder theory of accounting , companies are obligated to maintain comprehensive records of their operations and periodically report them in an understandable and comparable form of report . The report is then used to evaluate corporate performances and to inform investors , debtors , clients and other stakeholders in to help them make decisions regarding the corporation (Kamp , n .d

In to have the report being displayed within understandable and comparable

-whether between periods or between different companies- form , a set of standards is required . Today , the standards are compiled into the Generally Accepted Accounting Principles (GAAP . The GAAP is used in the United States and had been adopted in various countries for their accounting practices . The GAAP contains several fundamental accounting concepts , which are considered the core of modern accounting practices (`Accounting Reports and GAAP , 2004 . Within this , we will try to elaborate those fundamental concepts and explain how they are applied within standard form of financial statements

Objectives and Fundamental Qualities

There are three essential objectives of financial statement . First financial statement must be informative for investors and creditors to make credit , investment and other financial decisions . Second , a financial statement must be enlightening to assess the amount of cash receipts and its uncertainties in the future . Third , the financial statement must contain information about claims to corporate resources and changes within them

In to achieve those purposes , financial statement must have certain fundamental qualities . They are

Relevancy , each of financial information must be relevant in nature . It must contain usefulness for users to assess current conditions of the company and predict future results of corporate operations

Reliability , different auditors using similar methods to examine the same report must generate the same results . It means that the financial statement must be neutral and accurate in nature

Comparability , a financial statement must allow different companies to be easily compared to one another . In to achieve this objective all information in different corporations must be measured and reported in similar manner

Consistent , similar accounting methods must be applied in all periods and changes of methods between periods must be explained and justified (Kieso , 2000

III . Basic Accounting Concepts and Its Applications

The qualities identified above can only be obtained by following several basic accounting concepts

III .1 . Assumptions

III .1 .1 Economic Entity and Single Currency Assumption

Modern accounting practices use double entry bookkeeping with the following equation : Assets Liabilities Shareholders ' Equity

This double entry system is reflected within the balance sheet

ALBEGA CORPORATION

Balance Sheet

December 31 , 20xx

Assets 485 ,000 Liabilities 285 ,000 Shareholders ' Equity 200 ,000 Table 1

Balance Sheet

Available at : HYPERLINK "http /users .wfu .edu /palmitar /Law Valuation /chapter 203 /3-2-1 .htm http /users .wfu .edu /palmitar /Law Valuation /chapter 203 /3-2-1 .htm

The double entry system is inspired by the economic entity assumption of accounting . According to this principle , a company...