answer the following questions in brief paragraph form 1 what is GAA.pdf
- 1. answer the following questions in brief paragraph form 1 what is GAAP? What is IFRS? 2 name the four characteristics that help make accounting information useful. 3 what is the seperate-enity assumption? 4 explain materiality and give an example of both a material and immaterial item 5 what are the four basic financial statements? 6 What is a current asset? What is current liability? 7 What does recgonize revenue mean in accounting? 8 what is the matching princple? 9 what is an accural? a deferral? 10 Must a company collect the money from a sale before the sale can be recognized? 11 What is the cost of goods sold? 12 Explain the difference between cash basis acounting and accural basis accounting. 13 How is the current ratio computed? What does it tell us about a company ? Solution 1. GAAP stands for Generally accepted accounting principles. GAAP refers to a specific set of guidelines that have been established to help public traded companies create their financial statements. IFRS stands for International Financial Reporting Standards are a set of accounting standards developed by the Accounting Standards Board that is becoming global standards for preparation of financial statements. 2. The four characteristics that help make accounting information useful as follows: Prepaid objectively Consistency of recordation and presentation In support of decisions Matches reader knowledge Reliability and completeness of information 3. The separate entity assumption means that financial records of the owners are kept separate from the firm’s records and the firm is a separate entity. 4. Materiality refers to financial significance of the amounts reported in the financial statements or significance of an item or transaction. For example, a $3 wastebasket with a life longer than one year is immaterial in amount would be reported as an expense on the income statement rather than as an asset on the balance sheet. A piece of furniture that costs $20,000 and will last 5 years, on the other hand, is material and
- 2. will be placed as an asset on the balance sheet. 5. The four basic financial statements are as follows: The income statement Balance sheet Statement of changes in shareholders’ equity Statement of cash flows. 6. Current assets that have a company expect to convert to cash or use up within one year. Current liabilities are the obligations that a company expects to pay within the coming year.