Concept Introduction:
Accounting for recognition of receivables in IFRS and U.S GAAP
Accounting for recognition of receivables in IFRS:
IFRS recognize receivables using the realization principle and an earnings process since receivables are arising from the revenue generating activity. In IFRS, the arm’s length principle is not followed as it is followed in the US GAAP for realization principle. Rather, in IFRS, this notion is applied in terms of reliable measurement and probability of economic benefits.
Accounting for recognition of receivables in US GAAP:
US GAAP uses the same asset criteria as IFRS. The realization principle as per US GAAP implies an arm’s length transaction occurs. This is how, the recognition of receivables is done under US GAAP.
Accounting for valuation of receivables in IFRS and U.S GAAP
Accounting for valuation of receivables in IFRS:
IFRS requires companies to report receivables net of estimated uncollectible allowances. Only allowance method will be needed for uncollectible account. The allowance method can use the following methods to estimate uncollectible accounts –
• Percent of receivables
• Percent of sales
• Aging method
Accounting for valuation of receivables in US GAAP:
Same like IFRS, US GAAP requires companies to report receivables net of estimated uncollectible allowances. Only allowance method will be needed for uncollectible account. The allowance method can use the following methods to estimate uncollectible accounts –
• Percent of receivables
• Percent of sales
• Aging method
Requirement 1
To explain:
How the accounting for recognition of receivables is different between IFRS and US GAAP.
Requirement 2
To explain:
How the accounting for valuation of receivables is different between IFRS and US GAAP
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Chapter 9 Solutions
Fundamental Accounting Principles
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