Lecture 7

Question 1

What does GAAP stand for?

Answer 1

Generally Accepted Accounting Principles

Question 2

What is GAAP?

Answer 2

Formerly the local accounting standards produced by each country (e.g. UK GAAP, US GAAP)

Question 3

What does IASB stand for?

Answer 3

International Accounting Standards Board

Question 4

What does IFRS stand for?

Answer 4

International Financial Reporting Standards

Question 5

Where is IASB based?

Answer 5

London

Question 6

When was IASB established?

Answer 6

2001

Question 7

What does IASB do?

Answer 7

Produces IFRS

Question 8

Who produces IFRS?

Answer 8

IASB

Question 9

What accounting standards are used in the USA today?

Answer 9

US GAAP

Question 10

Why might a non-US company be allowed to use US GAAP?

Answer 10

If it’s listed on a US stock market

Question 11

What is one difference between IFRS and US GAAP?

Answer 11

US GAAP allows LIFO inventory valuation

Question 12

What are the steps of the accounting cycle?

Answer 12

1. Recording transactions & posting
2. Adjusting entries
3. Trial balance
4. Closing entries
5. Produce financial statements

Question 13

Describe the “recording transactions and posting” stage

Answer 13

• Record transactions using accounting equation / journal entry
• Transfer entries to T-accounts

Question 14

What are some examples of changes during the “adjusting entries” stage?

Answer 14

• Accrued / prepaid expenses
• Depreciation
• Inventory write-off
• Provision for doubtful debts

Question 15

Describe the “trial balance” stage

Answer 15

Check that debit = credit

Question 16

Describe the “closing entries” stage

Answer 16

• Transfer temporary account balances (income + expenses) to Retained Profit
• Reset their values to 0