Monday, November 29, 2010

RRJ#3

Reference:

Day, J. (2010, August 2). “Accounting Principles & Standards: Avoid Them at Your Peril”. Returned to Evan Carmichael Aug 2, 2010, from http://www.evancarmichael.com/Accounting/3600/ACCOUNTING-PRINCIPLES--STANDARDS--AVOID-THEM-AT-YOUR-PERIL.html

Summary:

In the article “Accounting Principles & Standards: Avoid Them at Your Peril” John Day explained the difference between accounting principles and accounting standards. Accounting principles are the basic suppositions, laws of operation, and imperative characteristics. These principles make the financial statements helpful to a person who makes decisions. First, the basic supposition is that users need correct information such as full disclosure principle, cost principle, and monetary unit assumption. Second, users need to know laws of operation such as matching principle and revenue recognition principle. Third, they also need imperative characteristics like relevancy principle and comparability principle. However, accounting standards are methods to solve accounting problems. These standards aren’t stable like accounting principles. For example, methods of depreciation and stock are updated every year.

Reaction:

I agree with the author as he showed the difference between accounting principles and accounting standards. Also, I think he is creative, because he can explain his points with clear examples. However, my major is accounting, so I disagree with the author when he said methods of depreciation and stock are kinds of standards, for I think these are kinds of principles. The methods of depreciation and stock follow consistency principle. In sum, this article is useful, for it gave me new terms in my majors such as principles, inventory, and depreciation.

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