Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

15. GAAP vs IFRS

GAAP vs. IFRS: Introduction

Financial Accounting

15. GAAP vs IFRS

GAAP vs. IFRS: Introduction

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Multiple Choice

According to GAAP, which of the following procedures is required when accounting for income taxes?

Using the cash basis of accounting for income taxes.

The use of the asset and liability method to recognize deferred tax assets and liabilities.

Recognizing all tax benefits only when they are realized.

Prohibiting the recognition of deferred tax liabilities.

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Verified step by step guidance

Understand the concept of accounting for income taxes under GAAP (Generally Accepted Accounting Principles). GAAP requires the use of the asset and liability method to account for deferred tax assets and liabilities.

The asset and liability method involves recognizing deferred tax assets and liabilities based on temporary differences between the book value of assets and liabilities (as reported in financial statements) and their tax bases (as reported in tax returns).

Deferred tax assets are recognized when it is probable that future taxable income will allow the company to utilize deductible temporary differences or carryforward tax benefits. Deferred tax liabilities are recognized for taxable temporary differences.

GAAP does not allow the use of the cash basis of accounting for income taxes, as this method does not align with accrual accounting principles. Instead, income taxes are accounted for using the accrual basis, which matches tax expenses to the period in which the related income is earned.

GAAP also prohibits recognizing all tax benefits only when they are realized and does not prohibit the recognition of deferred tax liabilities. The asset and liability method ensures that both deferred tax assets and liabilities are appropriately recognized in the financial statements.