Introduction, Review of Accounting Process and Financial Statements

There are many different terms that are important to the field of accounting. Some of the terms are used to understand financial statements, while others are used to define different types of financial standings and explain accounting principles. All of the terms are important to the field and offer support to investors and organizations alike in understanding financial concepts and practices. These practices are put to use and are frequently evaluated by financial specialists and the Financial Accounting Standards Board (FASB).

Investopedia.com explains Generally Accepted Accounting Principles as “The common set of accounting principles, standards and procedures that companies use to compile their financial statements. They are a combination of authoritative standards and the commonly accepted ways of recording and reporting accounting information.” Essentially, they are a set of procedures and guidelines developed to ensure everyone prepares and interprets accounting reports and financial statements the same way. These practices are important because they give a sense of normalcy to all organizations and set an even standard to which they must all comply. They define standards and principles that many organizations would have difficulty orchestrating on their own.

Investopedia.com continues, “GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements.” GAAP is important to financial statements because the statements easier to understand if the same or similar formats are used in all organizations. For investors, creditors, and accountants dealing with multiple accounts daily, having a consistent format allows fluency and consistency in daily tasks.

Investorwords.com defines contra-asset accounts as accounts which offset other...