Financial Accounting - Balance Sheet

Financial Accounting - Balance Sheet

Introduction

International Accounting standards due to their increasing complexity, are gaining increasing importance in today's world. Most of the countries follow IFRS, but USA has been reluctant to adopt these standards and have developed US GAAP (Benedicto, 2008).

Difference in Approach to valuation by US GAAP and IFRS

Inventory Valuation

While in the US GAAP system, the inventory valuation methods such as LIFO, FIFO and weighted average cost are permitted. IFRS does not attest to LIFO, but FIFO and weighted average are supported. That has a major impact on the taxation liabilities for the firms following IFRS as they have to value their inventory again (Benedicto, 2008).

Financial Instrument Valuation

Negotiation price is based on the fair value, based on the price set by the buyer and the seller. They are not based on entry value in US GAAP. While on the other hand, IFRS values the asset at the price at which it can be exchanged. Thus liabilities and assets are viewed differently in both standards.

Difference between an Expense (Expired Cost) and an Asset

Asset has some value or it is defined as something which business has the right to use and control. There are different classes of assets and they have to be measured and placed in the balance sheet accordingly. While on the other hand, expenses are the outflows that happen when business is conducting any revenue generating activity. Wages, rents and marketing (advertisements) are the items that treated as expense for the business (Benedicto, 2008).

Difference between Current and Long-Term Assets

Cash, marketable securities and other such resources that are expected to be cashed or realized or consumed within a certain defined period of time are termed as Current Assets. The time period might be firm's operating cycle, or one year.

While asset which are not expected to be consumed or eaten up by the business a year or operating cycle are termed as Non-Current Assets. Non-current assets include machinery, equipment or building (Benedicto, 2008).

Difference between Current and Long Term Liabilities

Current liabilities are such obligations for the firm that are expected to be paid from the current asset or through the creation of current liabilities (Edwards & Hermanson, 2007).

On the other hand, long term liabilities are the obligations that are not expected to be paid from the current assets. They are the obligations that have longer maturities and are not the immediate obligations of the firm. (Edwards & Hermanson, 2007)

Examples from Apple's Balance Sheet

Current Asset

As per the balance sheet of Apple 2012, (see Appendix 1), the cash and the cash equivalents of Apple are $ 10,746,000,000. While Inventory of $791,000,000 is another current asset.

Long Term Assets

$ 15,452,000,000 is the value of the plants and equipment of Apple as of 2012, (Table 1) which signifies the long term assets of Apple. Long Term Investments of $ 92,122,000,000 is another long term investment.

Current Liabilities

The accounts payable in 2012 are $ 32,589,000,000 while on the other hand, $5,953,000,000 is the value of other ...