GAAP and IFRS have some inherent differences in their approach towards valuation. One of the differences is seen in the valuation of intangible assets (Porter & Norton, 2011). Under the GAAP, intangible assets are valued at fair value. Unlike the GAAP, the IFRS recognizes the assets which will have future economic benefits as well as measured reliability. The other difference is seen in the valuation of inventory costs (Porter & Norton, 2011). The IFRS does not allow the Last-in, First-out (LIFO) approach towards the account of the costs associated with inventory. The GAAP allows the use of the First-in, First-out (FIFO) and the Last-in, First-out (LIFO) approach. The third difference in the approach toward valuation is seen in the write downs. Under the IFRS, allows inventories which are written down to be reversed in future provided that some outlined criteria are met. The GAAP approach is quite different because it prohibits the reversal of inventories that have been written down (Porter & Norton, 2011).
Expense (expired cost) versus an Asset
An expense is different from an asset in terms of value. An asset describes a tangible resource that belongs to an entity, a business or an individual. An asset also retains value a year and more after it was acquired. For instance, a house is an asset because it belongs to the owner and still has value one year after its last valuation. The best assets are those which appreciate in their value over time (Benedicto, 2008). This does not mean that the things which depreciate in value over time are not assets. The best illustration of this is a car and land. Land typically appreciates in value over time. A car rapidly depreciates in value after it is purchased. Nonetheless, both are still assets. Unlike assets, an expense describes a cost to be incurred. The other difference is that after one year, there is nothing to show for the expense. This is because, over time, the item is consumed. Examples include utilities, health insurance, rent, office supplies and clothes (Benedicto, 2008).
Current versus Long-term Assets
Currents assets are the belongings that a business consumes over a period of twelve months, and hence are unlikely to be there in the following financial year. An example includes the cash in checking, which is the primary account of a company that is used for the daily operations. Other examples of current assets include cash in savings, cash on hand, accounts receivable, inventory and prepaid insurance. On the other hand, long-term assets describe the belongings that will be used by a business for a period extending twelve months. Some of the examples of long-term assets include land, buildings, leasehold improvements accumulated depreciation of buildings, accumulated depreciation of leasehold improvements, accumulated depreciation of vehicles, equipment, furniture and fixtures and accumulated depreciation of furniture and fixtures (Benedicto, 2008).
Current versus Long-term Liabilities
Current liabilities describe the money that the owner of a business owes other creditors and is required to pay within a period of twelve months after the entry is made into the balance sheet under current liabilities. It is noteworthy that current liabilities do not just include debts, but also obligations and responsibilities. Examples of current liabilities include accrued interest, accounts payable, bank account overdraft, notes payable, rental payments, sales tax payable, and wages among others. On the other hand, long-term liabilities describe the debt, responsibilities and obligations which are due for a period more than one year after the entry was made on the balance sheet. Some of these liabilities include employee benefits, bonds payable, pensions and long-term rent.
Apple’s Balance Sheet
Part of the balance sheet of Apple Inc. is comprised of liabilities and assets. The current assets in the balance sheet of Apple Inc. include short-term marketable securities, cash and cash equivalents and vendor non-trade receivables. The long-term assets in the balance sheet of Apple Inc. include long-term marketable securities, acquired intangible assets and goodwill. The current liabilities in the balance sheet of Apple Inc. include accounts payable, commercial paper, accrued expenses and deferred revenue. The long-term liabilities in the balance sheet of Apple Inc. include long-term debt and non-current deferred revenue.
Retained Earnings, Loss or Income, and Dividends
Retained earnings describe the net income of an organization that is withheld by the organization rather than being shared among the shareholders as dividends. Ideally, retained earnings are recorded in the stockholder’s equity in the balance sheet (Benedicto, 2008). More often than not, the retained earnings are invested in organizational assets or used to offset the liabilities. In this way, the retained earnings increase the value of the company assets or reduce the liabilities of the organizations. An income or loss in an organization also affects the account. The income in an organization changes the stockholder’s equity by increase it by the value of the net income (Benedicto, 2008).
In the case an organization makes a loss, the stockholder’s equity reduces by the value of the loss. Additionally, income can be used to reduce the liabilities of the company, thereby reducing the total liabilities in the account. The declaration and the resultant payment of dividends in a corporation affect the account by reducing the assets and the stockholder’s equity (Benedicto, 2008). Between 2012 and 2014, the retained earnings account at Apple Inc. has reduced. However, this has not been entirely uninterrupted. Between 2012 and 2013, the retained earnings account increased from 101,289,000 to 104,256,000. However, the amount reduced between 2013 and 2014 from 104,256,000 to 82,152,000 (Yahoo Finance, 2015).
Differences between Samsung’s and Apple’s Balance Sheets
Source: (Yahoo Finance, 2015).
There are various differences between the balance sheets of Apple Inc. and Samsung. One of the differences is in the three years, Samsung has posted more assets (total and current) compared to Apple Inc. Another difference is that between 2012 and 2014, Samsung has posted lesser total liabilities (current and total) compared to Apple Inc. Finally, Samsung has had more retained earnings in the three years compared to Apple Inc (Yahoo Finance, 2015).
Companies can accrue both short-term and long-term debt. As shown in Table 1 above, Samsung has more debt when compared to Apple Inc. In fact, in 2012, Apple Inc. did not have any short-term or long-term debt. In 2013, Apple Inc. did not have any short-term debt. In the other years, Samsung posted more short-term and long-term debt compared to Apple Inc (Yahoo Finance, 2015).
Between Samsung and Apple Inc., Samsung is bigger than Apple Inc. In terms of total current assets and total assets, the figures of Apple Inc. are dwarfed by those posted by Samsung. Even though Samsung has more total current liabilities and total liabilities when compared to Apple Inc. Samsung still has more retained earnings to offset these liabilities compared to Apple Inc. a company whose retained earnings are not sufficient to offset its total liabilities (Yahoo Finance, 2015).
Benedicto, S. (2008). Introduction to financial accounting. Madrid. IE Business School
Edwards, J. & Hermanson, R. (2007). Accounting Principles: A Business Perspective. Volume 1 Financial Accounting. The Global Text Project. Retrieved from www.saylor.org/site/wp-content//Accounting-Principles-Vol.-1.pdf
Porter, G. A., & Norton, C. L. (2011). Financial accounting: The impact on decision makers. Australia: South-Western Cengage Learning.
Yahoo Finance. (2015). Apple Inc. (AAPL). https://finance.yahoo.com/q/ bs?s=AAPL+Balance+Sheet&annual
Yahoo Finance. (2015). Samsung Electronics Co. Ltd. (005930.KS). Retrieved from https://finance.yahoo.com/q/bs?s=005930.KS+Balance+Sheet&annual