• March 4th, 2016

Accounting Assumptions and Principles

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The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity. The FASB’s conceptual framework establishes a theoretical foundation of interrelated objectives, concepts, principles, and definitions that lead to the establishment of consistent high-quality financial accounting standards and the appropriate application of those standards in accounting practice.
The conceptual framework provides a logical structure of objectives, concepts, principles, and definitions that establish the foundation for financial accounting and reporting. The FASB and IASB describe four characteristics that enhance the usefulness of information. The characteristics are comparability, verifiability, timeliness, and understandability. Comparability of accounting information enables users to identify and explain similarities and differences between two or more sets of economic facts.
Caleb the intern in your company (from the discussion in Module 1) has been studying the accounting procedures and practices used by a selection of companies because he feels the companies are violating accounting procedures and practices. In the following cases discuss how you would explain what accounting assumption or principle has been violated (if any) and what should be done to rectify the violation (if any)
A. As soon as it purchases the inventory, Sokolich Company records the purchase price as cost of goods sold to simplify its accounting procedure
B. At the end of the year, Sloan Company records and reports the value of its land based on appraisal values
C. Ebert Company prepares financial statements only every two years to reduce its costs of preparing the statements
D. Gutherie Company receives orders from customers and records revenue at that time, even though it has not yet delivered products or services to the customers
E. Because of inflation, Cross Company adjusts its financial statements each year to show the current purchasing power for all items
F. At the end of each year, Vann Company reports its economic resources on a liquidation basis even though it is likely to operate in the future

Post your primary response (250 words). Be sure to check your work and correct any spelling or grammatical errors before you post it.

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