Question

Sherry Tsang has just started up a small corporation that produces clothing. She has applied for and received a government grant. The grant will automatically be renewed as long as the business shows a profit at year end. Because she is trying to control costs, Sherry will prepare the financial statements. The bank has lent Sherry money and is also waiting for the year-end statements. It will decide whether to renew the loan or not.

Which GAAP should she follow? Explain.

Answer 1

Sherry Tsang has just started up a small corporation that produces clothing. She has applied for and received a government grant. The grant will automatically be renewed as long as the business shows a profit at year end. Because she is trying to control costs, Sherry will prepare the financial statements. The bank has lent Sherry money and is also waiting for the year-end statements. It will decide whether to renew the loan or not.

In this situation first we have to understand the meaning and definition of GAAP.

-Generally accepted accounting principles, or GAAP, are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices.

-Generallyaccepted accounting principles, or GAAP, are the rules used in the U. S. for business accounting. Their objective is to make the accounting process uniform so financial reports are comparable from one company to another.

so from above explanations we conclude that Sherry Tsang has fallow the below rules...

• Relevance. All information required for decision making must be present on the financial statements. ...
• Reliability. All information must be free of error and bias. ...
• Understandability. Readers of the financial statements must be able to understand the reports. ...

Because the bank will renew the loan amount by studying the year ending statement which has prepared by Sherry...that's all.