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The financial accounting fundamentals mainly focus on the framework, format, and meaning behind the financial statements. The user of the financial statements, the systems of debit, credits liabilities, and payables transactions. The financial accounting guidelines work in the preparation of the programmes for the applicants of undergraduates and graduates. Accounting principles are a key aspect of accounting fundamentals; these consist of the rules, and guidelines that the ones using the financial data need to follow in preparing the report.
These are the standards of the terms, and methods used for accounting in companies and they are regulated by various regulating bodies. Generally accepted accounting principles (GAAP) and the IFRS have their own set of accounting standards. The GAAP is based in The USA the companies and the users of accounting data in that content generally use the guidelines made by GAAP. On the other hand, the guidelines of IFRS are recognized and followed by entities all around the globe.
The fundamentals of accounting comprise keeping a record of the primary functions of accounting. The basic concept of accounting helps the user develop an accounting understanding of accounting. The concept and principles help in the understanding of accounting equations, accounting information, and the preparation and interpretation of financial statements (Becker et al. 2022). The figure and statistics reflected in the financial report are interpreted followed by proper methods without making any assumptions. The assumption of accounting is known as Consistency, going concerned and accrual. The account, accounting record, accounting equation, accounting period, the worksheet all are the basic concepts of accounting. The principles of accounting such as the GAAP have multiple accounting concepts in the formation of their rules and guidelines. There are around 10 boards of Financial Accounting Standards like GAAP (Cipriano et al. 2021). The accounting concepts promoted and regulated by these boards include consistency and principles of regularity. Similarly, there are the principles of prudence, the permanence of methods, continuity, non-compensation, periodicity, and materiality.
The fundamental accounting concepts followed by IFRS are the basic four principles that are clarity, reliability, relevance and comparability.
The US GAAP is the primary accounting standard that is followed in the US. The IFRS is valued and accepted in terms of concept and guidelines. However, in the U.S most entities, Companies use the guidelines proposed by the GAAP. GAAP has accounting rules of the common type which depend on the requirements, and practices which are issued by the financial accounting standards board (FASB) (Hong et al. 2018). The rules of GAAP are confirmed by the Government of Accounting Standards Board (GASB). The procedures and assumptions used in accounting for all the industries of the US are regulated by the classified standards set by GAAP. The accounting concept of GAAP is based on rules and 10 principles as well.
The major rule of GAAP which was developed in 19870 is discussed below.
Accrual accounting methods: GAAP uses accrual accounting that records the revenue from sales but not from payment (Olibe et al. 2022). Direct expenses in the case of sales transactions and for payment of expenses, indirect expenses are recorded.
Depreciation and capital expenses: The major cost of the asset acquisition is recorded for the entire asset life. An asset having a life of 10 years will be re-recorded within 10 % for a period of 10 years.
Reporting Historical costs: The assets like the equipment, facilities and property cost of original purchases are accounted for instead of the current market values.
Reporting Bad debts: Companies that owe a significant amount of money from their customers must consider the possibility of some amount not being recovered. The companies are required to report the portion of accounts receivable that have lost and caused a loss of revenue in the books of accounts.
The IFRS influences the users with the ways the components of the balance sheet are to be reported.
Comprehensive income statement: This particular statement can be taken or separated into the statement of profit and loss or into other income statements which include the equipment, and property.
A statement reflecting changes in the equity position: This statement can also be represented as the statement of retained earnings. This reflects the changes that occur in the profit earned by a company in a financial period that is given.
Cash flow statement: This particular report is required to provide a summary of the financial transaction of a company for a given period of time. The report separates the cash flow of the business into Investment, finance and operations.
The accounting information is recorded and reported in the forms of an income statement, cash flow statement and balance sheet. Companies, and organizations all around the globe use accounting standards that are accepted and recognized in their region. Use of the information
The accounting information is of two types which are cash and accruals. Both methods use the accounting of double entries to record transactions with accuracy (Saleha et al. 2020). Accounting information has four branches which are corporate, government, public and forensic accounting. The accounting transaction from the activities of the financial or operational in every organization be it the private, public, charity or governmental organizations need a property record and report of their financial position at the end of a period. The information recorded and reflected in the books of accounts and various financial reports is made following the rules and guidelines set by governing bodies such as the GAAP and IFRS.
The basic users of accounting information are the public, government, management, suppliers, lenders, creditors, employees, trading partners, shareholders, and regulatory agencies. All the users of the accounts use the information shown in these accounting records on the basis of their needs (Ugli, 2022). The boards of the accounting standards such as the IFRS which is recognized and valued by the governments of several nations are used in the recording of accounting information in most countries all across the globe. GAAP on the other hand is also a well-recognized and accredited accounting standard that is slightly different for different countries.
The companies in the U.S use the accounting framework shown by U.S GAAP in making these reports. The organization of other countries generally uses the above-mentioned guidelines in the preparation of the financial reports in their respective countries.
IFRS is the accounting standard which governs the way specific accounting transactions and events are to be reported in the financial statements (Zhou et al. 2022). The conceptual approach of IFRS is mostly based on the principle of accounting.
IFRS looks at the outline and overall patterns of accounting as it is guided by the principles and the business practices that follow some mandatory rules set by IFRS.
In US GAAP the handling of the inventory cost is different on a last-in and first-out basis. In IFRS the valuation of the inventory is not handled in this format (Tribuzi, 2018).
Development costs in US GAAP have been treated differently the cost of intellectual property and the cost of software is c recorded here. In IFRS the development costs are treated as capital investments and the expenses are amortized with the effect of time.
In US GAAP the writer's downs are handled differently. The inventory, asset and the reduction or write down against it are not allowed to be reversed. However, the IFRS allows the reversal of the write-downs for the inventory and assets in case the values are changed.
The fixed costs are also handled differently in these two different accounting standards. The GAAP records the fixed assets and reports them including the equipment, facilities, and property as their original cost at the time of the purchase (Gordy, 2019). On the other hand, the accounting standards set by the IFRS give leverage to businesses and organizations to adjust the number of fixed assets at the value of the current market amount.
Conclusion
The fundamental accounting concepts and key aspects have been d highlighted in the assignment. The rules and regulations that are set and promoted by the accounting bodies of standards such as the GAAP and IFRS have been explained here along with their role. The m rules and principles that are the basis of the regulating bodies of the accounting standards have been explained in the assignment. The GAAP has been identified to be having the framework most based on rules. On the other hand, the guidelines formed by IFRS have been concluded to be mostly principle-based. The assessment can be concluded with the concept of IFRS and US GAAP which have been analyzed here in the file. IFRS is observed to be used worldwide and the US GAAP is only followed in the US. There are certain differences that have also been identified here in the assessment which include the difference in calculation and other treatment of the entries.
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