Question

True or False

1. publicly traded U.S. companies are able to supplement GAAP figures with additional non-GAAP figures they deem necessary.

2. An accrual always occurs when revenue and expenses are recognized and cash is received.

3. Generally accepted accounting principles (GAAP) require related revenues and expenses to be recognized when cash is exchanged.

4. The Financial Accounting Standard Board (FASB) establishes the rules for General Accepted Account Principles (GAAP).

5. Generally Accepted Accounting Principles (GAAP) are a set of accounting rules, standards and financial reporting practices utilized in the U.S.

6. The Realization or Recognition principle dictates that Revenues are recognized upon the delivery of products or services, regardless of when cash is exchanged.

7. The cost principles require that financial statements be based on today’s replacement cost.

Answer 1

True

Publicly traded companies can supplement GAAP figures with non GAAP figures to improve the disclosure requirements in the financial statements published. Hence answer is true. The GAAP is mandatory. Non GAAP is also used by companies to increase transparency in disclosures.

False

An accrual always occurs when revenue and expenses are recognised in books of account. There is no need for cash to be received in accrual accounting.

False

GAAP requires related revenue and expenses to be recognised when they are earned and incurred respectively. There is no need for cash to be exchanged.

False

The FASB does not establish GAAP principles. Instead FASB uses the GAAP principles to formulate its accounting standards and communicate the same to stakeholders and implement it in financial reporting

True

GAAP is a set of accounting rules, standards and financial reporting practice which corporate in US should follow. They are defined principles which should be applied in preparation of financial statements. GAAP improves the transparency of financial statements and improves the reliability of the financial statements to end users

True

The revenue recognition principle requires the recognition of revenue when goods are delivered or service is rendered and not when cash is received. This is in line with accrual concept.

False

The cost principle requires that financial statements should be published on historical cost at which asset is acquired. Replacement cost is not relevant for valuation and reporting of assets and liabilities.