Under U.S. GAAP
a. Currency signs are generally used in the journal, ledger, trial balance, and financial statements.
b. Share Capital – Ordinary is referred to as Retained Earnings.
c. The statement of financial position is often called the statement of changes in financial position.
d. The rules of debits and credits, and the steps in the recording process are the same as under IFRS (International Financial Reporting Standards).
The correct answer and explanation is :
The correct answer is d. The rules of debits and credits, and the steps in the recording process are the same as under IFRS (International Financial Reporting Standards).
Explanation:
U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) are the two primary accounting frameworks used globally. While both systems have many similarities, there are key differences between the two. Let’s break down the options and explain why “d” is correct:
- a. Currency signs are generally used in the journal, ledger, trial balance, and financial statements:
- This statement is incorrect because currency signs are not specifically required or generally used in U.S. GAAP. It is not a prescribed feature of financial statements under U.S. GAAP. While it is common for financial statements to report amounts in currency (such as dollars), there is no formal requirement to use currency signs (like “$”) in all the journals, ledgers, and trial balances, though it is common practice.
- b. Share Capital – Ordinary is referred to as Retained Earnings:
- This statement is incorrect. Under U.S. GAAP, “Share Capital – Ordinary” (also known as “Common Stock”) and “Retained Earnings” are distinct financial concepts. Common stock represents the equity invested by shareholders, while retained earnings represent accumulated net income that has not been distributed as dividends. These are separate components of equity.
- c. The statement of financial position is often called the statement of changes in financial position:
- This statement is incorrect. Under U.S. GAAP, the “statement of financial position” is known as the Balance Sheet. The Statement of Changes in Financial Position is an older term that was used in earlier accounting practices (under the cash flow statement). The correct term for the balance sheet is still “Statement of Financial Position” in IFRS, but not in U.S. GAAP.
- d. The rules of debits and credits, and the steps in the recording process are the same as under IFRS (International Financial Reporting Standards):
- This statement is correct. The rules for debits and credits are consistent under both U.S. GAAP and IFRS. Both frameworks use the double-entry accounting system, where each transaction involves at least one debit and one credit. The general steps for recording transactions (journalizing, posting to the ledger, and preparing trial balances) are also the same. While there are differences in specific accounting treatments between U.S. GAAP and IFRS, the foundational concepts, including the accounting equation and the recording process, are identical.
In conclusion, option “d” is the only accurate statement. Despite differences in financial reporting approaches between U.S. GAAP and IFRS, the basic accounting principles, including debits and credits, are the same.