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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: Liabilities


GAAP vs. IFRS: Liabilities

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Alright, let's discuss some of the differences between Gap and lifers when it comes to liabilities. So remember when we talk about Gap, that's the focus of this course, we're focused on Gap rules which are the rules in the usa and they're set by the Financial Accounting Standards board. They're the ones that make the generally accepted accounting principles which are gap. Okay, internationally we've got Lifers right the offers rules and that's the International Accounting Standards Board creating lifers. So let's go ahead and see some of the key similarities and differences between these sets of rules. So liabilities when it comes to liabilities? Well the general definition of a liability right? It's going to be some kind of outflow that we have some outflow of resources in the in the future. Well that's a liability and that's that general definition is the same. And the liabilities being presented in order of liquidity. That's also the same between gap and differs sometimes. What you'll see with lifers is that they're presented in reverse liquidity where they'll show the long term liabilities first and then the current liabilities. Okay. But they still present in order of liquidity whether it's forwards or backwards. Next when we talk about bonds payable, remember bonds payable? These are a long term liability and we're calculating interest and we've got the premiums and the discount on the bonds while those calculations are generally the same and both Gap and ifor's require the effective interest method when it comes to bond premium amortization. Okay, when we're advertising that premium or the discount into our interest expense. Well that's the effective interest method. Okay. Um and now some of the key differences here, what when we're converting convertible bonds, the conversion of convertible bonds, remember convertible bonds means that you there's an option to turn the bonds to equity. So you the bonds remember they start as a liability, their bonds payable. But a convertible bond can be converted into shares of stock. Well, there could be some differences in the accounting when we talk about gabber ciphers, but that's some high level accounting stuff. We're not gonna get into it in this course. And next when we when companies use ciphers, they often have a calculation of working capital on the statement of financial position. Remember the statement of financial position. This is what it offers calls the balance sheet. Okay, so Working capital. Well, working capital is just a calculation. So W. C Working capital, it's just our current assets minus current liabilities. Okay, so this is some useful information when it comes to investors, it's pretty easy to calculate, even if you have the information, uh you just look at the balance sheet, current assets, current liabilities, you can make it up yourself, but in Ifor's they show it on the face of the statement, but that's about it. Not any big differences here. Let's go ahead and move on to the next topic