New Class 2: Generally Accepted Accounting Principles
1. You have a friend who tells you that ethics are completely unimportant in business since a number of laws have been set up for us to know the rules of the game. Explain, with examples of unethical behavior noted in the past, why or why not this statement is correct.
2. The U.S. GAAP is based on a set of five principles that form the basis of accounting standards. Identify and explain these fundamental principles, and describe the overall meaning and purpose of each one.
3. Suppose that you just attended a lecture on Time Value of Money. On your way home, you stopped in to get a cup of coffee. One of your classmates, who missed the lecture, joined you for coffee and asked you to explain to them the key concepts of Time Value of Money and how you could use it to solve some of lifes financial problems. What would you tell them?
4. Differentiate the characteristics of common and preferred stocks
Provide one paragraph explaining how you believe the concepts reviewed thus far can have a real impact on management of your personal finances.
New class 2
Name
Institutional Affiliation
Question 1
The statement is incorrect because ethics determines the success of business. First, the knowledge by investors that a company they are dealing with upholds certain morals and principles gives them confidence that their finances are utilized morally. Additionally, it develops customers’ confidence in buying their products, as they know their source is unquestionable (Lagan, 2013, p.6). However, if a company fails to have ethics, they result in unethical behavior such as bait and switch in to lure customers into buying their products.
Secondly, employees appreciate a business driven by principles and values. Ethics determines how both employees and their bosses behave, thereby putting them in the same position. These values consequently, reduce employee turnover and subsequent cost of training new hires and aligning them towards a common goal (Lagan, 2013, p.7). Ethics eradicate unethical behavior such as time misuse in social media, improper use of computers such as shopping online and sexual harassment.
Thirdly, ethics advances decision-making. A business’s life and success depend on decisions made. When strong values drive decisions such as the production of quality products even if expensive, a business avoids behavior such as reducing the cost to make profits. For example, Mattel, the toy company making Barbie doll outsourced production to China to save on cost. However, it produced toys coated with toxic lead paint that is hazardous posing danger to children.
Question 2
The Generally Accepted Accounting Principles determine the preparation of financial statements by applying five principles. The revenue recognition principle requires the identification and recording of income earned after sending a bill to a customer or upon receiving payment of a sale. The matching principle affirms that revenue earned and expenses incurred during a particular period go hand-in-hand. It ensures the accurate analysis of comprehensive financial statements.
The cost principle applies in accounting for purchases and requires that when accounting for procurements, the price indicated should be the original price that reflects in all transactions. Further, the price should not change at all cost even with a change in the market value. The full disclosure principle requires the inclusion of all information about a company’s financial statements to make it understood. However, other information not directly correlating with the statements such as lawsuits or tax disputes is required and is filed as accom...