Accounting Essay Example | Topics and Well Written Essays - 250 words - 1

Accounting - Essay Example The information contained in financial reporting must be both relevant and reliable to the user – relevant data must be recent enough to be useful and be confirmed in the future as well as confirm older data, and reliable in that different users are able to use the same information to come to similar, if not the same, conclusions about the company’s economic status, and unaffected by our own concerns within the business. (36) The latter means that no one is permitted to skew information’s presentation to better our image, so that the data is dependable for any user, whether internal or external. The information in financial reporting must also be comparable to other companies in our industry – if a practice is normally used, we should use it also so that it is easier for investors to read our reports – and consistent. (37) Should an accounting practice change, it needs to be very clearly stated and if necessary, we should adjust former periods’ information so that the impact of the change is easily discerned. Consistency is a critical attribute for us to demonstrate, so that users are able to watch the trends of our company’s success without worrying that we adjust accounting practices to improve the bottom line when having difficulties, and comparability is so that users are able to compare us to our other industry members. A last feature of the above information is the ‘matching principle’ that is required by U.S. GAAP. The matching principle is a simple rule – any expenses incurred in the current period must be matched to any revenues incurred in the current period. (45) This is a component of when we recognize revenue, and has a direct impact on the balance sheet. The above information should be helpful in understanding how our accounting practices work, and why they are so important for our investors and creditors. If