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GAAP vs. IFRS: Recording Differences quiz

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  • Who sets GAAP and where is it primarily used?
    GAAP is set by the Financial Accounting Standards Board (FASB) and is primarily used in the United States.
  • Who sets IFRS and where is it primarily used?
    IFRS is set by the International Accounting Standards Board and is used internationally.
  • What basic record-keeping system do both GAAP and IFRS use?
    Both GAAP and IFRS use a journal entry system with debits and credits for record keeping.
  • Are currency symbols typically used in journal entries under GAAP and IFRS?
    No, currency symbols are not typically used in journal entries; they are only shown on trial balances and financial statements.
  • What is the purpose of a trial balance under both GAAP and IFRS?
    The trial balance lists all assets, liabilities, and equity to ensure proper balance and to prepare for adjustments and financial statements.
  • What principle does GAAP primarily use for asset valuation?
    GAAP primarily uses the historical cost principle, keeping asset values at their original purchase cost.
  • How does IFRS differ from GAAP in valuing assets?
    IFRS allows more frequent use of the fair value principle, permitting assets to be revalued based on current market conditions.
  • For which types of assets does GAAP generally allow the fair value principle?
    GAAP generally allows the fair value principle only for short-term investments where market values are easily verifiable.
  • Can IFRS use the fair value principle for long-term assets?
    Yes, IFRS allows the fair value principle for both short-term and long-term assets, including property, plant, and equipment.
  • Why does GAAP prefer the historical cost principle?
    GAAP prefers the historical cost principle because it values consistency and avoids fluctuations from market value changes.
  • What is a benefit of using the fair value principle under IFRS?
    A benefit is that it provides more up-to-date information by reflecting current market values.
  • What must a company do if it chooses to use the fair value principle under IFRS?
    The company must be consistent in using the fair value principle and cannot switch methods based on convenience.
  • What is the unit of measure principle in accounting?
    The unit of measure principle means using one consistent currency, such as the dollar or euro, throughout the accounting records.
  • How are adjustments handled in the trial balance process under both GAAP and IFRS?
    Adjustments are made in the same way under both systems to create an adjusted trial balance for financial statements.
  • What is the main difference between GAAP and IFRS in asset revaluation?
    The main difference is that IFRS allows revaluation of a wider range of assets using fair value, while GAAP restricts it mainly to short-term investments.