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GAAP vs. IFRS: Classified Balance Sheet quiz #1 Flashcards

GAAP vs. IFRS: Classified Balance Sheet quiz #1
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  • What are the main differences between GAAP and IFRS in the presentation of a classified balance sheet?
    GAAP (used in the USA) and IFRS (used internationally) both require a classified balance sheet dividing assets and liabilities into current and long-term based on a one-year threshold. However, IFRS refers to the balance sheet as the 'Statement of Financial Position,' typically lists equity before liabilities, and presents assets in reverse order of liquidity (long-term assets first, cash last). Additionally, GAAP uses the historical cost principle for asset valuation, while IFRS allows assets to be revalued to fair market value, leading to more current but potentially fluctuating asset values.
  • What is the main difference in the naming of the balance sheet under GAAP and IFRS?
    GAAP calls it the 'Balance Sheet,' while IFRS refers to it as the 'Statement of Financial Position.'
  • How do GAAP and IFRS classify assets and liabilities on the balance sheet?
    Both GAAP and IFRS divide assets and liabilities into current and long-term based on a one-year threshold.
  • In what order are assets typically listed under IFRS compared to GAAP?
    IFRS lists assets in reverse order of liquidity, starting with long-term assets and ending with cash, while GAAP lists the most liquid assets first.
  • How does the presentation of equity and liabilities differ between GAAP and IFRS?
    IFRS typically presents equity before liabilities, whereas GAAP usually lists liabilities before equity.
  • What terminology difference exists between GAAP and IFRS for investments in shares?
    GAAP refers to them as 'investments,' while IFRS calls them 'share investments.'
  • What principle does GAAP use for valuing assets on the balance sheet?
    GAAP uses the historical cost principle, recording assets at their original purchase cost.
  • What valuation method does IFRS allow for assets that GAAP does not?
    IFRS allows assets to be revalued to fair market value, providing more current but potentially fluctuating values.
  • What is a potential advantage and disadvantage of the fair value principle under IFRS?
    The fair value principle provides more current information but can cause asset values to fluctuate with market changes.
  • Despite presentation differences, what fundamental equation do both GAAP and IFRS balance sheets follow?
    Both follow the equation: Assets = Liabilities + Equity.