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Accounting Principles

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Accounting principles 2

Every business and organization needs some form of accounting principles to run on. They are the foundations that either makes or breaks a corporation or business. Businesses from the small corner drugstore to the giant health care organizations work using these accounting principles every-day, simply by understanding the techniques used we are to understand the functioning behind them. Several forms of accounting come up with a result, some of these are cash flow, accrual, and fund accounting. Their strengths and weaknesses as well as inventory accountability will be discussed further in this paper. Smaller company’s compared to say the larger scaled one would have the most problem with applying or using some of these techniques as well as differences between the nonprofit versus profit organizations. Reasons being managers need to know the costs of their budget by having a cost analysis and budgeting report prepared. Accrual accounting is measured by the performance as well as the position of a company in acknowledging the economic events of how cash transactions occur, and depreciation has to be estimated while inventory can be determined simply by doing an adjusting entry for the cost of goods sold. Economic events are matching revenues to the expenses to which a transaction occurs when payment is received. By doing this allows the cash inflow or outflow to be combined with any future inflow or outflow to paint a more accurate picture of any company or business’s financial state (Allbusiness, 2010). Although being highly accurate, the weakness of accrual accounting is that the system is expensive to operate-mainly for the small business owner. These accrual records are more…...

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