Discussion: Accounting principles (Essay Sample)

Accounting principles
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Accounting principles
The record of $10,000 revenues to be earned in January next year could increase the value of current assets as well as the asset worth of the company. By adding this amount, the current ratio increases to 1.50, therefore, meeting the condition of the bank. In this perspective, the company will avoid breaching the bank’s requirement and avoid the probable penalties.
It is the policy of every organization fairly to divulge the financial statement of the company in compliance with the applicable accounting rules, regulations, and principles. Accuracy and honesty recording and reporting of financial information is critical since it helps in making responsible business decisions (Wink & Corradino, 2011). Recording next year’s revenue will compromise the accounts of the company to the stakeholders. It does not reflect company’s assets in a reasonable manner. It augments the asset worth of the company and therefore presents the wrong financial position of the company as at the time of preparing the report.
Grant Film production violates several generally accepted accounting principles (GAAP). Under the accrual basis of accounting, the company’s revenues should be recognized when the product has been sold, or a service has been rendered. Revenue recognition principle suggests that $10,000 revenue is to be earned in next year and should be recorded in next year’s financial statements (Wink & Corradino, 2011). Another accounting principle violated is accounting period principle. It rules that the financial record for a certain year should include only those transactions or entries undertaken in that year. For instance, the financial report for the year 2013 should include only those revenues, expenses and cost that were earned or incurred in 20...