Financial Standards: Accounting Principles

Running head: ACCOUNTING PRINCIPLES

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ACCOUNTING PRINCIPLES

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Accounting principles

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There are changes that have taken place in the business world today. Business operations and functioning have been affected by the technology advancements that have taken place. Accounting has remained the most reliable business function in organizations today. There are some business procedures and methods that have changed but accounting has remained to be the same. Accounting is an important function in business organizations as it reflects the performance of an organization through financial statements that are made (Hussey, 2010). The role of every business organization is to make profits. Through accounting, a company is able to measure its performance in relation to its main objective. Accounting is therefore an important function as it plays a major role in the measurement of a businesses’ performance.
Accounting enables companies to make reports, record financial statements and make an analysis about the activities of the company. Information provided by accounting includes cost of goods sold, liabilities, income and equity to debt ratios. Accounting assists an organization in making comparisons with the industrial financial standards. The companies are able to relate and benchmark from the companies which are in a similar industry (Prowle & Lucas, 2016). The owners of businesses use accounting as a way of making statements that enable the business managers to rate to determine the performance of the organization. Through accounting, it is possible to compare the different ratios that tell the performance of an organization. Through the accounting ratios, companies are able to learn on areas in which they should make improvements so as to remain competitive in the industry. Business owners and business managers are able to create a focal point for the success of the organization by making the necessary improvements.
Accounting is referred to the language of business as it assists most companies in understanding their operations. it is a method which is used in rating all the business organizations using similar measurement methods. Business organizations cannot be measured well as businesses perform different business operations. Accounting introduces a measuring stick that makes it possible to determine the different operations of different organizations (Kieso, Weygandt & Warfield, 2012). Through the accounting measures, different ratios are formulated and they can be used to compare the performance of the different organizations. Accounting also assists the company’s shareholders in making decisions as they have all the required financial information. Through accounting, all the organization’s shareholders have the ability to know the historical and current financial performance of their organization which will then enable them to foresee the future of the organization.
The coca cola company is one of the business organizations where stakeholders are engaged in making major decisions. The company uses financial statements of the past and those of the present time period which are then delivered to stakeholders helping them in making decisions. In most cases, the company asks for the opinions of its stakeholders in making some decisions. For instance, the company consults the consumers of its products as well as the distributors (Hussey, 2010). They open up and give their opinions to the company and the improvements that should be made in making the company better. The company engages all its stakeholders through publicizing their financial statements so that all the stakeholders can have a clear view of its performance. The company then holds meetings with both the locals and the international customers. Through their cooperation, the organization is able to make financial decisions as well as the general decisions related to its operations. The ability of the shareholders to make decisions is based on their understanding of the financial statements and their ability to interpret them. The company holds meetings in which stakeholders are taken through the different financial statements so that they get to understand the implication of each.
The Generally Accepted Accounting Principles are a set of principles used in accounting. Companies must follow this set of principles when they make their financial statements. GAAP consists of authoritative standards and methods that are generally accepted in making accounting records. The authoritative standards are set by the accounting policy board to ensure that accounting operations are performed in the correct way. GAAP plays a role in ensuring that there is improved clarity in the communication of accounting information. GAAP also ensures that there is consistency in the financial statements that are made by different companies (Prowle & Lucas, 2016). Through GAAP it is also possible to compare financial and accounting information from previous years and from different companies. Additionally, GAAP ensures that there is compliance by the organization when distributing accounting statements outside the organization. When a business organization decides to trade its stock publicly, its financial statements must adhere to the GAAP principles. GAAP covers some major things such as recognition of revenue, classification of balance sheet items and measurement of outstanding shares. Companies should also comply with the GAAP principles during the process of financial reporting.
On the other hand, the Financial Accounting Standards Board was established with its main purpose being the improvement of the Generally Accepted Accounting Principles. The operations of the FASB aimed at ensuring that accounting standards and principles are applied when making the accounting statements. FASB was given the job of making accounting standards that govern the public companies all over United States. FASB was created to replace American Institute of Certified Public Accountants and the Accounting Principles Board. FASB standards are referred to as being authoritative and every company has to follow them in their accounting procedures (Kieso, Weygandt & Warfield, 2012). FASB make and issue financial accounting standards a process which is both transparent and inclusive thus promoting the issue of financial reporting. FASB ensures that there is delivery of accurate financial statements to the users of the statements. FASB is uniquely positioned in financial reporting. It ensures that there is development and issuance of accounting methods that aid public companies in creating accurate financial statements.
FASB assists the users of financial statements in making informed decisions on investment. FASB does this by ensuring that all financial statements are accurate and honest in the way that they are presented. FASB ensures that there is transparency in the way that the financial statements are formulated and presented to stakeholders. Transparent information is important as it ensures that the public can easily understand what is presented. Investors are also assisted by the financial statements by making a decision on whether to invest with the company or not. Additionally, creditors are able to make a decision of continuing to support the company or not (Hussey, 2010). Creditors and investors are able to make evaluations of the company and make decisions on whether to continue supporting them or not. The effectiveness of the management is determined by the FASB through the financial statements. The FASB ensures that there is accuracy in the way the financial statements are presented ensuring that improvement is made in the necessary departments of an organization.
References

Hussey, R. (2010). Fundamentals of international financial accounting and reporting. Singapore: World Scientific.

Prowle, M., & Lucas, M. (2016). Management accounting in the contemporary business world.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2012). Intermediate accounting.