General Principles
HCS/571
March 9, 2015

General Principles
In review of the evidence based literature, the six principles of accounting have been identified by Cleverley and Cameron (2007) , “accounting entity, money measurement, duality, cost valuation, accrual accounting, and stable monetary unit”. For these identified principles I would like to give a brief synopsis of each principle and the intention behind the principle.
The first principle which is accounting entity, is the intent for the understanding of a financial statement. In this statement, financial information is not only recorded but also reported. Another description of the accounting entity principle is that it takes on more than one dimension or meaning in recorded information, reported or legal and needs to be well defined in order for a clear understanding of financial information to be conveyed to others. This relates to health care in that the budget for a service line to give patient care is written in a financial statement. The managers over the service line need to know how to read the statement in order to record money spent and read how much money is available to spend.
Explaining the second accounting principle, money measurement is the yardstick of how far the money can be stretched in purchasing the necessary goods and providing efficient service to the organization. In other words, the goal is to make the most effective use of the money resources, in order to maximize output at the least possible cost. According to Cleverley, Song and Cleverley (2011), financial information in regards to decision making within an organization can be utilized in the five following ways: "evaluating the financial condition of an entity, evaluating stewardship within an entity, assessing the efficiency of operations, assessing the effectiveness of operations, and determining the compliance of operation with directives" (p. 5). If these resources are mismanaged, this can cause an organization to fail or even review their liabilities against their resources to assure the necessary supplies, equipment, and technology are being met on a monthly or quarterly basis. However, the less money spent is means for a larger starting net balance the next month, which also means more equity for future spending. This is used in personnel management to decide whether to put the money toward a nurse position versus two aid positions, for example.
The duality principle is one of the most essential principle in accounting, because it’s simplified by our basic arithmetic method. VanDerbeck (2011) states, “the most important thing to remember is that cash transactions must be carefully analyzed under the duality principle to keep the basic accounting equation in balance. To better understand this duality principle, one must remember, the key to learning the duality principle is the individual asset, liability, and net asset accounts will create a balance. An example for this would be the cost of a constructing a building amortized over time to allow the income from patient care to pay for construction. Another example is the cost of supplies to give health care must be covered by the income received from giving that patient care.
The fourth principle, cash valuation is defined in the Webster dictionary (2011) as “the amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss. It is the actual value for which the property could be sold, which is always less than what it would cost to replace it”. This would be used to consider whether to fix or replace machine. The depreciation of the machine determines a life cycle for the machine. If the machine, let’s say a computer, is broken, it may be better to write off the computer if it is close to the end of its life cycle. In essence the computers cash valuation is forfeited. If the computer breaks closer to the beginning of the life cycle, it would be better cash valuation to get it fixed.
The fifth principle is accrual accounting which means that the transactions of a business enterprise are” recognized during the period to which they relate, not necessarily during the periods in which cash is received or paid” (Cleverley and Cameron, 2011). This means that the transaction occurs on the day of service, however, the payment does not come on that same day. A healthcare example is that the patient’s care is given on a particular day however, the patient’s insurance company pays the bill afterward- sometimes up to 30 or 90 days afterward.
The sixth principle is stable monetary unit. According to Cleverley and Cameron (2011), a stable monetary unit has the same purchasing power in one year as it would in another year. This does account for inflation. Our monetary unit is the dollar; due to inflation the dollar does not have the same purchasing power from one year to any other year. The relationship of this principle for health care is that if there is a gap in when money comes in from services rendered and when staff payment for giving the services, there will be a shortage of money to pay the workers giving the services.
In summary, I have discussed the six general principles of accounting. I have provided an example of how each principle relates to health care.

References
Laird, C. (2011). Webster’s New World Roget’s A-Z (Rev Ed.). New York, New York, NY: MacMillan USA.
VanDerbeck, E. J. (2013). Principles of Cost Accounting (16th Ed.). Mason, OH: Cengage Learning.
Cleverley, W. O., Song, P. H., & Cleverley, J. O. (2011). Essentials of health care finance (7th ed.). Sudbury, MA: Jones and Bartlett