IFRS prohibits items to be categorized as extraordinary, while U.S. GAAP
permits this categorization.
Financial Reporting And Analysis MCQ - Financial Reporting And Analysis Section 1
Retrospective application means that the financial statements for
previous fiscal years are presented as if the newly adopted accounting
principle had been used throughout the period. A change in
accounting policy is applied retrospectively.
A classified balance sheet separately classifies current and non-current
assets and liabilities. Excess of current assets over current liabilities is
known as working capital.
49
An asset or liability is created on the balance sheet when revenue is recognized before cash is received and vice versa. Which of the following combinations is most accurate regarding the creation of an asset or liability?
| Revenue recognized.Cash not received. | Cash received. Revenue not recognized. |
| Asset | Asset |
| Asset. | Liability |
| Liability. | Asset |
Recognizing revenue before receiving cash creates a ‘receivable’ which is
an asset. Receiving cash before recognizing revenue creates ‘unearned
revenue’ which is a liability.
Balance sheet provides information about a company at a specific point
in time. C is incorrect because there are three elements: assets,
liabilities, and equity.
