GAAP are the standards of accounting that are used in the US. They give way for the recording and reporting of financial information in an orderly manner. Companies that uses GAAP have always benefited from it since it eases the comparison of company financial statements burden. The GAAP helps in the healthcare sector in establishing wealth of an organization and the financial strength rating earning (Milgram, 353).
Under the GAAP, the accrual accounting method of accounting is used by various businesses. It acts in allowing the companies to report that may be still outstanding. Business can display an acquisition that is not yet received but guaranteed like the government grant. It provides an advanced net worth as compared to the use of cash accounting method (Behn, 33). It does not include money for patients or clients who may have in a way or the other defaulted on the account; this is known as contra, it is reported as a value that is realizable.
The rules and regulations of GAAP allow the insurance organizations and financial institutions a room for the comparison of the business of health aid to other firms hence determining the credit worthiness. For instance, a new business or company with an income of $300 may give an impression that it’s useful for a comparison to a similar new business with a revenue of over $1 million is done (Milgram, 353). GAAP records as well show the future revenue like medical insurance funded by the government and payments from the insurance firms.
Lastly, this method of monetary reporting gives room for the company to disclose all its assets and to account for depreciation. The liabilities are recorded in exact segments that show the administration the areas of business that are not running correctly and any need for attention. This information gives the management room to incorporate different strategies to turn pledges into fulfillment and recognize if a fundraiser investment was worthy (Behn, 33).
Work Cited
Milgram, L. "Generally Accepted Accounting Principles (GAAP)." Managing Smart (2009): 353. Web.
Behn, Bruce. "Generally Accepted Accounting Principles (GAAPs)." Encyclopedia of Health Care Management (2011): 33-38. Web.
