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Accounting principles are not like physical laws, they do not exist in nature awaiting discovery. Rather, they are developed by people, in light of what we consider to be the most important objectives of financial reporting. In many ways generally accepted Omega Replica(http:www.imitatewatchGoodsBrandReplica-Omega-Watches-51) accounting principles are similar to the rules established for an organized sport, such as football or basketball. For example, accounting principles http://www.soccerbayernmunichfcshop.com/Authentic-Renato-Sanches-Jersey/ , like sports rules:
Originate from a combination of tradition, experience, and official decree.
Require authoritative support and some means of enforcement.
Are sometimes arbitrary.
May change over time as shortcomings in the existing rules come to light.
Must be clearly understood and observed by all participants in the process.
Unfortunately, accounting principles vary somewhat from country to country. The phrase "generally accepted accounting principles" refers to the accounting concepts in use in the United States. However, the principles in use in Canada, Great Britain, and a number of other countries are quite similar. Also, foreign companies that raise capital from American investors usually issue financial statements in conformity with the generally accepted accounting principles in use in the United States. Several international organizations currently are attempting to establish greater uniformity among the accounting principles in use around the world.
The Use of Financial Statements by Outsiders
Most "outside" decision makers use financial statements in making investment decisionsthat is, in selecting those companies in which they will invest resources or to which they will extend credit. For this reason, financial statements are designed primarily to meet the needs of creditors and investors. Two factors of concern to creditors and investors are the solvency and profitability of a business organization.
Creditors are interested in solvency the ability of the business to pay its debts as they come due. Business concerns that are able to pay their debts promptly are said to be solvent. In contrast, a company that finds itself unable to meet its obligations as they fall due is called insolvent. Solvency is critical to the very survival of a business organization a business that becomes insolvent may be forced into bankruptcy by its creditors. Once bankrupt, a business may be forced by the courts to stop its operations http://www.soccerbayernmunichfcshop.com/Authentic-Rafinha-Jersey/ , sell its assets (for the purpose of paying its creditors), and end its existence.