Accounting Principles | Answers

Identify whether it belongs to GAAP or IFRS

Uses LIFO
➛ GAAP

Allows revaluation of land
➛ IFRS

Uses detailed rules
➛ GAAP

Uses broad guidelines
➛ IFRS

Revenue recorded when service is provided
➛ Revenue Recognition Principle

Asset recorded at purchase price
➛ Historical Cost Principle

Notes added to explain financial statements
➛ Full Disclosure Principle

The same depreciation method used every year
➛ Consistency Principle

Business avoids overstating profit
➛ Conservatism Principle

IFRS allows LIFO.
➛ False

GAAP is rule-based.
➛ True

Full disclosure means hiding information.
➛ False

Conservatism avoids overstating assets.
➛ True

Revenue should be recorded when cash is received.
➛ False

A mobile phone shop sells phones on credit. In December, it earns KES 450,000, but customers will pay in January.

The company records the revenue in December.

Questions

Which accounting principle applies?
➛ Revenue Recognition Principle

Why not record the revenue in January?
➛ Because revenue must be recorded when earned, not when cash is received.

Is this rule the same under GAAP and IFRS?
➛ Yes, IFRS also requires revenue to be recorded when earned.

What does GAAP stand for?
➛ Generally Accepted Accounting Principles

What does IFRS stand for?
➛ International Financial Reporting Standards

Historical cost means recording assets at their market value.
➛ False

Which system is used in Kenya?
➛ IFRS

Name one accounting principle.
➛ Revenue recognition
➛ Matching
➛ Historical cost
➛ Conservatism
➛ Full disclosure
➛ Consistency
➛ Materiality
➛ Objectivity.

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Accounting Equation ➧ Here