Asked by Jonathan Palmer on May 31, 2024

verifed

Verified

GAAP mandates certain segment information disclosures.Describe the procedure a company would follow in determining whether an operating segment is reportable.

Operating Segment

An operating segment is a component of a business that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the entity's chief operating decision maker.

GAAP

Generally Accepted Accounting Principles, a framework of accounting standards, rules, and conventions used in the United States for financial reporting.

Reportable Segments

Distinct parts of a business that are specifically identified for reporting purposes due to their operations’ financial results being regularly reviewed by the company's decision-makers.

  • Comprehend and implement the generally accepted accounting principles (GAAP) in the context of segment reporting.
verifed

Verified Answer

CM
Cameron MichaelJun 01, 2024
Final Answer :
An operating segment is reportable if it satisfies at least one of the three following tests: a. Its revenues (including sales to external customers and intersegment sales) are 10% 10 \% 10% or more of the combined revenues of all the company's segments.

b. The absolute amount of its profit (loss) is 10% 10 \% 10% or more of the combined profits of all operating segments that did not report a loss.

c. Its assets are 10% 10 \% 10% or more of the combined assets of all operating segments.