Foundational Accounting Principles and Terminology Essay

We all know how important the method of method of accounting aspect of any business concern/organization is. It is grassrootsally the most important way to manage finances. Without proper accounting for all expenses and finances, a company and/or organization will definitely have a hard time organism fiscally stable. In this paper we will discuss some foundational accounting principles and terminology that atomic number 18 basic merely quite essential to the accounting practice. Now lets discuss some accounting terms beginning with Generally Accepted Accounting Principles.Generally Accepted Accounting Principles (GAAP) is a computer code of how CPA firms and corporations prepare and present their business income and expense, pluss and liabilities on their fiscal statements. GAAP is not a sensation accounting rule, but rather the aggregate of many rules on how to account for various transactions. GAAP are to a greater extent like accounting standards (Wikipedia, 2009). Next w e have Contra-Asset Accounts, which is defined as an account which offsets another account. A contra-asset account has a credit residue and offsets the debit balance of the corresponding asset.A contra-liability account has a debit balance and offsets the credit balance of the corresponding liability (InvestorWords, 2009). Let us relocation on to Historical Cost, which is a measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company. The historical-cost method is used for assets in the U. S. under generally accepted accounting principles (Investopedia, 2009). Okay, now at that place is the accrual Basis vs. Cash Bonus Accounting. This is the difference between the two.In Accrual basis accounting, income is reported in the fiscal period it is earned, regardless of when it is received, and expenses are deducted in the fiscal period they are incurred, whether they are salaried or not. Basically, you record both revenues and expenses when they occur. In cash basis accounting, revenues are recorded when cash is truly received and expenses are recorded when they are actually paid (Ward, 2009). Last but not least, there is the Accounting Standards Codification.Accounting Standards Codification (ASC) is a major restructuring of accounting and reporting standards designed to simplify drug user access to all authoritative U. S. generally accepted accounting principles (GAAP) by providing the authoritative literature in a topically organized structure. ASC disassembled and reassembled thousands of nongovernmental accounting pronouncements (including those of FASB, the Emerging Issues Task Force EITF, and the AICPA) to organize them under most 90 topics. The ASC are those that over imagine that all accounting and reporting standards are adhered to (Wikipedia, 2009).It is now time to move on to discuss and mark three sets of financial statements that are part of finan cial statements of companies /organizations. The three sets of financial statements we will be describing are The Balance Sheet, The Income Statement and The Statement of Cash Flows. The balance sheet besides known as the Statement of financial position reveals a companys assets, liabilities and faithfulness (net worth). The balance sheet is divided into two parts that must equal from each one other, or balance each other out. The formula of the balance sheet is Assets= Liabilities + Shareholders Equity.What this formula room is that assets, or the means used to operate the company, are balanced by a companys obligations along with equity investment brought into the company and its retained earnings (Investopedia, 2009). Next we have the income statement, which measures a companys financial performance over a particularised accounting period. The financial performance is assessed by giving a summary of how the business incurs its revenues and expenses. It also shows the net pro fit or loss incurred over a specific accounting period, which is typically over fiscal quarter or year (Investopedia, 2009). Moving on to the break one, which is the cash flow statement. The cash flow statement allows investors to understand how a companys trading operations are running, where its money is coming from, and how it is being spent. The cash flow statement is also a needed part of a companys financial report, and has been so since 1987 (Investopedia, 2009). Now I will describe which is more useful, Net Income or Cash from Operating Activities? I believe that Cash from Operating Activities is more useful to companies because they can generate cash in several different ways.Three different ways to be exact, they are cash flows from operating activities, from investing activities, and financing activities. Cash from Operating Activities, in my flavor is the most useful because it paints the best picture of how well a companys business operations are producing cash. Af ter looking over the annual financial reports for Samsung, RTL Group and Lockheed Martin, I make the presage that each company will continue to improve its net income as well as see a significant spike in their cash flow.As far as relevant schooling in regards to conglomerates, such as the IDOLS segment of the Fremantle Media North America, I was not totally sure how to perk up this information but I eventually continued to read the investor portion on the RTL Group website where I found out more information. All in all, I learned some new definitions when it comes to accounting and decision making. I thought this assignment was intense due to a lot of reading and research, but I believe I got through it well. I look forward to learning more nigh how accounting and decision making come together.Referenceshttp//www.investopedia.com/articles/04/033104.asphttp//www.investopedia.com/articles/04/031004.asphttp//www.investopedia.com/terms/i/incomestatement.asphttp//www.investorwords.c om/5476/contra_account.htmlhttp//en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles