Financial Accounting

Learn the toughest concepts covered in your Financial Accounting class with step-by-step video tutorials and practice problems.

15. GAAP vs IFRS

GAAP vs. IFRS: Adjusting Entries


GAAP vs. IFRS: Adjusting Entries

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All right now let's talk about some of the key differences between gap and differs when it comes to adjusting entries. So adjusting entries have been a big focus of this unit. So let's go ahead and talk about how I could have some differences here. Remember gap. This is what we focus on in this course. We focus on the U. S. Laws. Generally accepted accounting principles. Well they're set by faz be the financial accounting standards board. They create gap where internationally well the international standards are set by the International Accounting Standard board and those are called offers the international financial reporting standards. Okay so let's go ahead and see what some of these key differences are and similarities for the adjusting entries. So let's start here with the similarities. First, accrual accounting is required. That means we need adjusting entries right? When we do accrual accounting, that's why we were doing these adjusting entries compared to cash basis accounting. Where we only focus on cash. So we do the accrual basis of accounting in both gap and offers And we use the periodicity assumption, This periodicity assumption. It's another reason why we make our adjusting entries right? Remember periodicity. That means that we're breaking up an indefinite timeline. Right? The the company doesn't stop to produce financial statements. No. It keeps running and it keeps running. But we we break it up into into artificial time periods usually a year so that we can do you are reporting and we do the same thing in I first. Right we're gonna have to break up time so that we can do our financial reporting usually in years right, will show our balance sheet at the end of the year. We'll show our income statement for a period of time. We show these same statements but it's just the difference. Or excuse me, the it's not like the time actually stops for this reporting right time keeps going. The business keeps running. But we're breaking it up just to to be able to report this information. Okay. And revenue recognition rules the ones that we discussed in this chapter, they're generally the same. Especially when we talk about the things we talk about in this course. They're gonna be the same. The rules for revenue recognition. Okay. Now some of the key differences. We've talked about this before, the use of the fair value principle by I fur's okay. This this can change the value of long term assets, right? So we talked about depreciation and depreciating our long term assets. So you can imagine if we're re valuing these assets, what it's going to affect our depreciation calculations based on what the value of the asset is okay in gap, we don't do any of these revaluations of our long term assets. So our depreciation calculations are going to be quite simple. Okay, I first allows these changes in valuation and that could change how we calculate depreciation. We don't need to get into the details in this course. We're not gonna be calculating depreciation under ifor's rules and seeing these revaluations. However, the methods that we use for calculating depreciation, they're going to be generally the same. It's just the fact that this fair value principle, adjusting the value of the asset that can affect the calculation. Okay. And now under Ifor's another big difference here is what they call an expense. Okay? So under Gap we have two things and Gap, we have expenses, which are things that happen in the normal course of business expenses. But then we have things that are outside the normal course of business. So if we lose money outside the course of business, we'll gap cause that a loss. We're gonna have losses outside the normal course of business. Okay, So that could be something like we have a piece of stock, we have a share of stock that we have as an investment and we sell it, but we lost money on that sale. Well, that would be a loss from the standpoint of gap, but from my papers they would also call that an expense. Okay, so it's just a little difference in terminology and it's not really that big of a deal here. All right, so that's about that's about it for adjusting entries. Let's go ahead and move on to the next video