GAAP Basics from Video

Flashcards cover the key GAAP concepts from the video, including purpose, external users, accrual basis, revenue recognition, credit risk considerations, and global standards (US GAAP by FASB and IFRS).

What does GAAP stand for?

Generally Accepted Accounting Principles.

What is GAAP?

A common set of rules, principles, and standards that companies must follow when preparing financial statements for external users.

Who are external users of financial statements under GAAP?

Government, investors (potential and current), and creditors like banks.

GAAP applies to which type of accounting?

Financial accounting for external reporting; not management accounting or tax.

Why is GAAP important for investors when comparing two companies?

It provides a common set of rules, enabling apples-to-apples comparisons across companies.

What is cash basis accounting and how does it differ from GAAP accrual accounting?

Cash basis recognizes revenue when cash is received; accrual recognizes revenue when earned, not necessarily when cash is received.

In the appliance store example, how much revenue is recognized for a $700 dishwasher sold on credit?

$700, recognized when shipped/delivered under accrual accounting.

What methods are mentioned for estimating uncollectible accounts?

Aging of accounts receivable and percentage of sales.

Who creates US GAAP and what codification is involved?

FASB (Financial Accounting Standards Board) creates US GAAP, maintained through the Accounting Standards Codification.

What is IFRS and how widespread is its adoption?

International Financial Reporting Standards; adopted by over 100 countries.

What is local GAAP?

Country-specific GAAP; some countries establish their own accounting rules instead of using a single global standard.