From the course: Accounting Foundations: Global Finance and Accounting

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Similarities between IFRS and US GAAP

Similarities between IFRS and US GAAP

From the course: Accounting Foundations: Global Finance and Accounting

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Similarities between IFRS and US GAAP

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- Hey, accounting is accounting. Whether one uses IFRS or US GAAP. The accounting equation underlies both sets of accounting standards. Assets equal Liabilities plus Equity. The great insight behind this accounting equation was created over 500 years ago in Italy. The traders in Venice and other traders in Italy had this insight: let's keep a list of our assets like we've always been doing. But every time we get an asset, let's also write down where we got the money to buy that asset. We write down the asset, and we write down the source of the financing to buy that asset. That I borrowed the money to buy the asset, was it invested by the owners? If I borrow the money, then liability is the name I give to the source of the financing to buy that asset. If the money was invested by owners, I say equity was the source of the money to buy the asset. It seems so simple, but this discipline is the foundation of all of the sophisticated financial reporting that we now have in the world. Both…

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