GAAPS and IFRS

Question 1

Objectivity principle, neutrality

Answer 1

• Accounting transactions and source documents should have supporting evidence and proof so investors can truly see a business profit
• Free from bias
• Different people looking at the evidence will arrive at the same value for the transaction.

Question 2

Revenue recognition

Answer 2

Only record revenue when it has been earned

Question 3

Expense recognition

Answer 3

• Expenses should be recognized in the same period as the revenue
• Expenses are recorded when benefit is used up to generate revenue.

Question 4

Matching principle

Answer 4

Revenue recorded in a given accounting period, should have an equivalent expense recorded, in order to show the true profit of the business.

Question 5

Cost principle

Answer 5

• All business resources acquired should be valued and recorded based on the actual cash equivalent or original cost , not the prevailing market value or future value.
• Exception to the rule is when the business is in the process of closure and liquidation.

Question 6

Consistency principle/comparability

Answer 6

Accountants should apply the same methods and procedures from period to period. When changes are made, they must be explained clearly on the financial statements.

Question 7

Materiality principle/relevance

Answer 7

If you have a pencil sharpener worth $100, since its a fixed asset it has to depreciate but since it will depreciate a very small amount, it wont affect the financial statement.

Question 8

Full discloser principle

Answer 8

If you change methods of how your business operates you must disclose in your financial statements, such as if you change depreciation methods.

Question 9

The business entity concept

Answer 9

The owners personal assets must be kept separate from the businesses assets, such as if the owner purchases a car for personal use, the business can’t list the car as an asset.

Question 10

Going concern

Answer 10

If the owner decides to sell the business or retire they still must continue the daily activities or recordings as if the business would last forever.

Question 11

Monetary unit

Answer 11

Any business that is worldwide and sells their product or service in different currency, on the financial statements must all be in the same currency.