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Unformatted text preview: 3-1UCSB AndersonThe Accounting ProcessChapter 33-2UCSB AndersonGAAP LITERATURETRADITIONAL: Original pronouncements, issued by the FASB.SEPT. 2009 CHANGE: Codification issued by the FASB.DIFFERENCE: Codification is listed by topic which is much easier to perform research and capture all reules relating to a particular subject than the original pronouncements.3-3UCSB AndersonUSGAAP IFRS, WHATS UP WITH THAT?We use USGAAP in the United States. In many foreign countries they use International Financial Reporting Standards (IFRS, aka iGAAP). Some important highlights:UCSB teaching model based upon USGAAP.USGAAP & IFRS are both accrual based systems and are VERY SIMILAR:Even as we speak, some of these items are being changed in both USGAAP and IFRS to make them even more similar! This is called ConvergenceIFRS tends to be EASIER and LESS DETAILED (principle based)The SEC proposes that by 2011 large public companies will be required to adopt IFRSRead between the lines Small SEC companies and most private companies will continue to use USGAAP.We will reference key differences if applicable to concepts taught during this course and elaborate in an IFRS specific discussion at the end of the quarter.3-4UCSB AndersonCash Basis versus Accrual Basis Accounting3-5UCSB AndersonThe Income Statement report the revenuesand expensesof a firm, for a particular period of time, stated according to the accrual basis ACCRUAL BASIS of accounting.Measuring IncomeThe objective of preparing an income statement is to obtain a measure of operating performance that matches a firms outputs (revenues) with the associated inputs (expenses).3-6UCSB AndersonCash Basis versus Accrual Basis of AccountingCash Basis (A COMPREHENSIVE BASIS OF ACCOUNTING THAT IS NOT GAAP):Revenueis recorded only when the cash is received and,expensesare recorded only when the cash is paid.Accrual Basis: (GAAP)Recognizing revenuewhen it is earned, without regard to when the cash is received, and recognizing expenseswhen associated benefit (revenue) is recorded; also known as the matching principle. Statement of cash flows fills in the gap!FASB and SEC are currently making this very complex. Quote from the CFO at one of my SEC registrants: Revenue MAYBE when cash is received and expenses immediately. SAB 101NOTE: They are THE SAME in the long-term. Also the timing of recording revenues and expenses under GAAP is a primary objective of high-level accounting.3-7UCSB AndersonCash Basis versus Accrual Basis ExampleSeminis, Inc. had the following transactions: In September 2000, Seminis purchased seed inventory for $18,000 on credit. Seminis paid the suppliers invoice in September2000....
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- Fall '08