Question

11. Can investors be confident that if the financial statements of different companies are accurate and...

11. Can investors be confident that if the financial statements of different companies are accurate and are prepared in accordance with GAAP, the data reported by one company will be comparable to the data provided by another? Why might different companies account for similar transactions in different ways?

Homework Answers

Answer #1

answer:

  • Ordinarily organizations pursue two kinds of bookkeeping frameworks - Cash based and Accrual based.
  • As the name proposes, in Cash based bookkeeping framework, costs are acknowledged just when the payout happens.
  • Correspondingly, incomes are acknowledged when cash is gotten.
  • In Accrual based framework, costs are reserved at whatever point a dedication is made, (for example, situation of a Purchase Order), regardless of whether installment is made in a similar period or not. Additionally, incomes are reserved when Invoices are made, regardless of whether monies are gotten in a similar bookkeeping period or not.
  • GAAP expects organizations to utilize just the Accrual arrangement of bookkeeping.
  • Thus if two organizations are following GAAP, the information must be accounted for comparably.
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