CHAPTER 7: ACCOUNTING, RECORDS, AND ASSOCIATED REGULATIONS
Many countries have adopted these standards. A complete and up-to-date list of countries and the status of their adoption of the IFRS accounting standards is available here .
In the U.S., the Financial Accounting Standards Boards (FASB) is a private, non-profit organization that establishes appropriate accounting standards for both public and private companies that follow the Generally Accepted Accounting Principles (GAAP). Public companies in the U.S. must use GAAP rather than IFRS standards. The primary difference between IFRS and GAAP accounting standards has been described as principles-based vs. rules-based, respectively. IFRS rules may require interpretation based on an accepted understanding of what their intent is and how they should be applied, whereas GAAP provides more specific detail, sometimes based on industry. There are also differences in how the two systems regulate balance sheet reporting, cash flow statements, and asset valuation (including inventory). For more information, visit http://online.hbs. edu/blog/post/gaap-vs-ifrs
7.4 General Ledger
The general ledger is a summation of all financial transactions from the company’s supporting journals. The general ledger contains an accounts receivable control account. The AR ledger feeds financial transactions into the general ledger and the general ledger balances are the source from which the financial statements are produced. ‘T’ ACCOUNTS/COMMON AR TRANSACTIONS Whenever there is an increase to cash, a debit to the cash account occurs. Similarly, if cash decreases, a credit entry is made to the cash account. Simply stated, the principles of double entry accounting mean that any transaction has two sides. Sometimes called “ T accounts ” because of the shape of the diagram that appears on them, these are graphic representations of accounts in the general ledger.
A debit is recorded in the left column and the credit in the right column. For every debit, there must be a credit and they should zero balance.
Generally, when a company records an invoice that has been sent to a customer, the accounting entry is:
Debit: Accounts receivable Credit: Income account
This entry has the effect of increasing the money that is owed in accounts receivable account, and at the same time recording the revenue that has been earned. This entry increases the accounts receivable asset on the balance sheet and also increases the revenue account on the income statement.
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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