Accounting Principles & Assumptions

Financial accounting is the process in which accountants or other professionals compile data of finances and turn it into useful financial reports that are standardized when processes are followed. In order for financial reports to be standardized, it must have guidelines, principals and assumptions to follow. Generally Accepted Accounting Principles “GAAP” is recognized for employing the body of standards. Accounting principles and assumptions work together to ensure a company’s financial reports are consistent, reliable, and understandable. These guidelines “provide both broad and specific guidelines that should be followed when measuring and reporting financial information.” (Lohrey)

Conceptual framework is a standard that is “essentially the underlying foundation for accounting standards.” (Spiceland, Sepe & Nelson, p.19) The foundation for accounting standards is grounded on identification of “good practices from which principles are derived inductively” (Accounting Theory and Conceptual Frameworks) and consistent standards. Conceptual framework compacts fundamental financial reporting challenges and provides a coherent set of standards to help alleviate deviations and allows a financial preparer of reports a set of guidelines to help ensure standardization. It is the framework for financial reporting that allows financial events to be accounted for, measures to be tracked, and the information to be summarized for interested parties. Conceptual framework increases the financial statement reviewers understanding and confidence in the reporting.

Preparing financial reports has standards and guidelines available for standardization; however, it is important to know how to assess the reports. Cash flow analysis illustrates when the cash flow occurred during the accounting period. Timing is very important in regards to cash flow analysis because it provides cash inflow and outflow measurements for different periods of time. Positive cash flow provides for a healthy economic resource within your company. A positive cash flow “is where the cash that flows into the company is higher than the cash amount that flows out, during the same period of time. A positive cash flow will not always indicate that profits are being made, but they will mean that finances are looking up for a company.” (TheLawDictionary.org)

Economic resources can be related to anything that provides services or produces goods. In layman terms, it is “the inputs that are used to create things or help you provide services.” (Education Portal) Economic resources are assets or things of value that the company can use to do their business. These things can be, but not limited to, human resources, land, financial resources, capital goods, and technology. In order for the business to make money, they must have the economic resources to provide the service. Once they have the money and provide the services,