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: Statement of Cash Flows


GAAP vs. IFRS: Statement of Cash Flows

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Now let's discuss some of the main similarities and differences when it comes to the cash flow statement. When we're talking about gap rules verse refers rules. So remember gap, that's what we've been focusing on in this course. The generally accepted accounting principles here in the USA and these rules are set by the Financial accounting standards board. Faz be creates gap compared to the international rules that are set by the International Accounting Standards Board. And they're creating offers the international financial reporting standards. Okay, so let's see some of these similarities and differences for the statement of cash flows. So in both cases, a cash flow statement is required. They're both gap and offers say you need to make a cash flow statement. It's very important information. Both cases were separating it into the operating investing and financing activities just like we just like we've learned same thing for Ifor's And again we have the indirect method or the direct method when it comes to the operating section. So remember the indirect method where we started with net income and then we made some changes to get to our operating cash flows. Well, it's basically the same thing. We're doing the same calculation when it comes to gap or refers. And we've got the definition of cash equivalents. So remember cash equivalents that's basically converted into cash In less than 90 days. So they're very liquid investments that aren't gonna be investments for that long. They're basically cash. They're as good as cash. Okay, so now let's go ahead and see some of these differences between gap and I first when it comes to the cash flow statement first, is that significant non cash investing and financing activities. Remember when we talked about significant non cash investing and financing activities. This was a separate part at the bottom of the statement where we made disclosures in gap to say, hey, we bought land for common stock or something like that. And the reason this is important because we're kind of skipping a step right because we could have issued common stock and got cash and then used that cash to buy land. But instead we just gave them common stock and we got land something like that. So it's still, it's almost like we skipped the cash step. So it's still a significant transaction that happened and we want to disclose it and Gap. We reported on the statement of cash flows while lifers just reports it in the notes to the financial statements. Okay, so the notes is after the, we show our financial statements and then we've got pages and pages of notes. We lifers would include this information in those notes. Okay, we're gonna go over the differences between interest dividend and taxes. Where in gap we learn the way we do it in Gap interest is included in operating well, we'll see it below we've got interest in operating dividends are financing and taxes are operating as well. We'll, we'll see the differences there with lifers. And finally I first allows the operating section to be presented as one line. So you can just say operating cash flows are this much. And then in the footnotes, when you get to the notes to the financial statements, they basically show the operating section in the notes to the financial statements instead of on the face of the statement itself. So that's just a small difference there. They're still giving you all the information. They're just kind of putting it in the notes instead of on the face of the statement. So let's look at some of these classification differences. So notice when there's interest paid, when we pay interest or receive interest from a gap perspective, remember we learned those were operating activities, but I first gives you a little more leeway, right? I I first gives you the chance to put them in as financing or investing activities, whether they're paid or received when we pay interest. That could be a financing activities. That makes sense. Right. We're paying interest to our creditors. So it could be a financing activity. So I first gives you that leeway when it comes to interest. Same thing with dividends, dividends paid well when we pay dividends, we know from gap that was a financing activity. But again, ifor's lets you put them in either operating or financing as long as you're consistent in how you do this reporting. I first give you that leeway dividends received, that was an operating activity right? When we're receiving dividends? Well, I first gives you the chance to put it in operating or investing, and finally, taxes paid. They're gonna be operating activities in both cases. But has this rule that if it's related to some financing or investing activity, well then we're gonna put it in that category, Okay. For the most part, you don't need to worry about these differences. When you talk about your cash flow statement in this class, you you're focused on Gap. Don't don't boggle your mind up with these differences. For Lifers, that's going to be knowledge for a future course. I just wanted to expose it to you here that there are differences when they prepare the statement of cash flows under the rules of Ifor's. Okay, so definitely focus your attention on the gap rules and then once you are a master of accounting and you're getting into your higher level courses, then you're gonna be focusing on these differences with lifers. Alright, let's go ahead and move on to the next video