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: Merchandising


GAAP vs. IFRS: Merchandising

Play a video:
Was this helpful?
Alright now let's discuss some of the similarities and differences between Gap and offers when it comes to merchandizing operations. So remember we talked about Gap and differs. Our our focus in this course is mostly on Gap right? We talked about Gap throughout this course and these are the rules in the U. S. Generally accepted accounting principles and they're set by the Financial accounting standards board here in the U. S. They create gap where internationally we have the International Accounting Standards board creating offers the international financial reporting standards. Okay so as we focus mostly on Gap, we're gonna be talking about the similarities and differences throughout this course. So let's go ahead and see some of these similarities and differences when it comes to a merchandizing operation. So both Gap and I first they use the perpetual and periodic systems that we've been talking about throughout this chapter. They're both gonna use those same systems and the way they define inventory, it's gonna be the same basic definition for what inventory is. Okay now this is kind of a similarity and a difference all in one because both when both gap and differs, they both when you when you report your income statements to to the users, they both force you to show multiple years of income statements. They don't just let you show this year's information they make you compare it to last year. But the difference is that gap makes you show three years of of gap of income statements where refers only forces you to show two years. Okay so that's one of the differences here is Gap uh shows three years of information when it comes to the income statement. So three years of income. So you can compare to previous years where I first just says, okay let's compare it to last year. Okay. So they're the same in that they both make you show years of comparable income statements but different in how much they make you show. So let's see some of the other differences here. Well I first remember we talked about the single step income statement, the multi step income statement. They don't even mention it. They don't really talk about it at all and how you format the income statement. But there's still those general rules for creating the income statement and showing your net income. And another big one that we talked about. Remember we've talked about this before when we talked about differs is the revaluation of long term assets to fair value using the fair value principle. Okay. But however when it comes to the income statement, when we do this revaluation, let's say we had this long term asset that was valued at 100,000. Then we we found that the market value is actually 100 and 50,000. Well that extra 50,000 that we gained in value, it's not gonna go into our income statement. It's gonna go through comprehensive income which we talked about it a little bit. It's it's basically beyond the scope of this class but it's basically not part of net income, it's not our main revenue and expenses. After we show net income, we go through a few other kind of weird issues such as these Revaz valuations to get to our comprehensive income, which includes pretty much everything. It's more comprehensive than just not our net income. It has a few other, more abstract, more difficult accounting issues involved, like these revaluations. Okay, so those gains and losses that we get from these revaluations, they don't go through net income, they go through this comprehensive income. Alright. And if you want a little more information, I have a short video about comprehensive income, but I don't want you to get too caught up on that idea in this course. It's definitely not a big topic in your first accounting course. Alright, let's go ahead and move on to the next video.