Social Sciences Economics Finance

CPA
Terms in this set (860)

Fundamental 1. Relevance
Characteristics of 2. Reliability (faithful representation)
Accounting Information

Comprehensive Income NI + OCI

Unrealized G/L AFS OCI: Not on income statement

Securities

Unusual, frequent items No separate disclosures

Predictive Value, Confirmatory Value,

Aspects of Relevance
Materiality

Comparability (consistency), verifiability,

Aspects of Reliability
timeliness, understandability

Single source of US GAAP FASB Accounting Standards Codification

Amended through Accounting Standards Updates

All US public companies Required to follow US GAAP

Accounting standards Only after majority vote by members of
update issued FASB

Replacement Cost Amount of cash or cash equivalent

Continued vs. Predictive value

discontinued income

Royalties paid Reported as expense in the period incurred

Disposal on component of Discontinued

a business

Overdraft reported as Current liability

Cash account for payment Noncurrent asset

into a bond sinking fund

Cash realized time beyond operating cycle

Non current asset
or 1 year

Deposits received from Liabilities

customer

Deferred revenue increases, but service

Service Contracts sold revenue doesn't increase until services are
performed

JE when contract is None

performed
 Cash received:
Dr. Cash 15000
Cr. Unearned Sales revenue 15000

Journal entries sales of Product transferred:

service contract Dr. Unearned Sales Revenue 15000
Cr. Sales Revenue 15000

Dr. COGS 9000

Cr. Inventory 9000

ISTAR
1. Identify Contract
2. Separate performance obligations
3. Transaction price expected to be entitled
Revenue recognition
to
process
4. Allocate to separate performance
obligations
5. Recognize revenue based on either a
point in time or over time

Bill and hold Recognize all revenue now. 0 unearned

Discount Allocated

Consignment No unearned revenue--didn't sell anything

Deferred revenue= Unearned Liability

Service contracts
Service revenue= earned income

Milestones achieved Output method to recognize revenue

 Can recover costs. Would not have been
Incremental costs incurred if didn't enter the contract.
Recognized as an asset

Revenue recognition: 1. Gross consideration entity expects to

receive
1. Principal
2. Fee or commission performing the agent
2. Agent function

Forward or Call Option Financing arrangement

Repurchase price >

Original Selling Price

Dr. Cash 350000

Cr. Financial Liability 350000

Recognize interest exp:n 385000 (RP) -

350000 (Cash received)

Forward or call option Dr. Interest exp 35000

Financing arrangement JE Cr. Financial Liability 35000

Option lapses unexercised: Derecognize

liability and record sale

Dr. Financial Liability 385000

Cr. Revenue 385000

Separate performance obligation. Longer

If you get extended
the coverage period, higher likelihood it's a
warranty
performance obligation
 Forward Obligation to repurchase the asset

Call option Right to repurchase the asset

Forward or call option Lease

Repurchase Price <

Original SP

Financing arrangement. Entity recognizes

Forward or call option asset, financial liability for any consideration
received from customer, recognize interest
Repurchase price >/= expense= Consideration received from
original SP customer - amount of consideration to be
paid by customer

Obligation to repurchase asset at customer's

Put option
request

1. Lease if customer has significant economic

incentive to exercise the right. Repurchase
Put option. Repurchase price > expected MV
price < Original SP
2. Sale with right of return (customer doesn't
have significant economic incentive)

1. Financing arrangement (if RP price is >

expected MV of the asset)
Put option. RP price >/= 2. Sale with right of return (if RP price is <
Original SP expected MV or asset and customer doesn't
have significant economic incentive to
exercise the right
 1. Keep revenue for transferred products
2. Give back a refund liability
Refund liabilities & right to
3. Get back an asset related to the
return
subsequent recovery of products when
refund liability is settled

Percentage of Completion GAAP and IFRS

(revenue over time)

CIP (inventory): Construction costs &

estimated GP earned
Percentage of completion:
Construction in progress
Progress billings: Billings on construction,
contra inventory

1. Due on accounts (receivables)

Percentage of completion: 2. CIP: costs and estimated earnings of
current asset accounts uncompleted contracts in excess of progress
billings

Progress billings in excess of cost +

Percentage of completion:
estimated earnings on uncompleted
Current liabilities
contracts

1. GP of completed contract= Contract price

- estimated total cost
2. % of completion: Total costs to date/total
Percentage of completion:
estimated cost of contract
GP or loss recognized
3. Profit to date= 1 x 2
each period
4. GP earned for the current year= PTD (step
3) - PTD beginning of the period= Current
YTD GP
Completed contract or Loss is recognized immediately in year
percentage of discovered: Reverse previous profit.
completion: estimated Recognize immediately- percentage
loss on total contract becomes 100%

Cost incurred/total expected cost= work

% of job earned
done/total expected work

Completed contract US GAAP only. IFRS doesn't permit

Completed contract Difficult to estimate, many contracts, short

appropriate when duration

Completed contract When contract is completed. Unless loss is

revenue and GP reocgnized
recognized

1. Due on A/R
Completed contract 2. Cost of uncompleted contracts in excess
current asset accounts of progress billings: construction in progress
(like inventory)

Completed contract 1. Progress billings on uncompleted

current liabilities contracts in excess of cost

Completed Contract at Contract price - total costs

completion: GP or loss=

Progress Billings Vs. Cumulative costs incurred. GP reocgnized

Accumulated costs + (before subtracting out prior year GP)
excess earnings
Consignor/Consignee: Consignor maintains on the books.
Inventory Consignee revenue= commission

If receives or expects to receive

consideration for a customer and anticipates
having to refund a portion or all of that
Recognize refund liability consideration. Can't book revenue at the
time of the sale, can't reasonably estimate
returns. Once 12 month period passes, then
recognize revenue

NRV FV - Costs to Sell

Prospective. Don't restate. No adjustment to

beginning RE. Implement in current period
and continue in future periods

Changes in lives of FA, adjustments of year

end accrual of officers salaries/bonuses,
Change in estimate
write-downs of obsolete inventory, material,
nonrecurring IRS adjustments, settlement of
litigation, changes in accounting principle
TO LIFO, CHANGE IN DEPRECIATION
METHOD, revisions of estimates regarding
discontinued operations
 Change in accounting from one accounting
principle to another acceptable accounting
principle. GAAP to GAAP.
Non GAAP to GAAP IS AN ERROR. NOT
Changes in accounting
CHANGE IN PRINCIPLE.
principle

May only be changed if required by GAAP

or the alternative principle is preferable and
more fairly presents the information.

1. Cumulative effect= Difference between

amount of beginning RE in the period of
change and what the RE would've been if
Cumulative effect: Change the accounting change had been
in accounting principle. retroactively applied to all prior affected
periods.
1. If noncomparative FS
presented Adjust beginning RE for earliest year
presented. Net of tax.
2. If comparative FS
presented 2. Cumulative effect= Difference between
beginning RE in first period presented and
what RE would've been if new principle had
been applied to all prior periods. Net of tax.

Recognized by adjusting beginning RE in the

earliest period presented for cumulative
Reporting Changes in effect of the change, and if prior period
Accounting Principle (comparative) financial statements are
presented, they should be restated
(retrospective application)
 Entity has changed composition.
Consolidated or combined financial
statements presented in place of statements
of individual companies and changes in
companies included in consolidated or
Changes in Accounting
combined FS from year to year.
Entity
1. ?
2. If comparative FS are presented, if a
2. Restatement
change in accounting entity occurs in the
current year, all previous FS presented in
comparative FS along with current year
should be restated to reflection information
for new reporting entity. RETROSPECTIVE.

Prior period adjustment. Corrections of

errors in recognition, measurement,
presentation, or disclosure in FS resulting
from mathematical mistakes, mistakes in
Error Correction application of US GAAP, or oversight or
misuse of facts that existed at time FS were
prepared. Changes from a non GAAP
method of accounting to a GAAP method of
accounting (cash basis to accrual basis)

Errors: If comparative FS Merely correct error in prior FS.

presented and FS for the
year with the error are
presented (if year is
presented)

Error: If comparative FS Adjust (net of tax) opening RE of earliest

presented and FS for year year presented
with errors not presented
(too far back in years)
Errors: comparative FS not Error correction reported as adjustment to
presented opening balance of RE (net of tax)

Unrealized G/L in trading Included in net income

securities

Goodwill recorded at HC

Understatement of ending Overstatement COGS, understatement NI

inventory

Revenue recognition: Point in time

refundable

Revenue recognition: Non Over time

refundable

Revenue recognition over 1. Output Method

time: 2 methods 2. Input Method

Units produced/delivered, time elapsed,

milestones achieved, surveys of
Output method
performance completed to date, appraisal
of results achieved

Costs incurred relative to total expected

Input method costs, resources consumed, labor hours
expended, time elapsed

Unconditional right= 1. Receivable

Conditional= 2. Contract Asset
 PUFER
1. Pension adjustment
2. Unrealized G/L on AFS debt securities
3. Foreign currency items
Components of OCI
4. Effective portion of cash flow hedges.
Interest rate contracts, commodity contracts
5. Revaluation surplus (IFRS only). No
revaluation loss.

G/L on ineffective portion Include in current income

of cash flow hedges

End of each accounting Closed to BS.

period, all components of NI closed to RI.
comprehensive income: OCI closed to OCI.

Adjusting journal entries Cash Account

never involve

Inventory written off Change in estimate

Dr. Cash
Record unearned revenue
Cr. Unearned revenue

Adjusting entry once Dr. Unearned revenue

revenue earned Cr. revenue
 1.
Dr. Prepaid expense
Prepaid expenses Cr. Cash
1. Record
2. Adjusting 2.
Dr. Expense
Cr. Prepaid Exp

Recording inventory: Dr. Inventory

Perpetual Cr. A/P

Recording inventory: Dr. Purchases

Periodic Cr. A/P

Accrued revenue journal Dr. A/R

entry Cr. Revenue

Dr. Expense
Accrued Expense JE
Cr. Accrued Liability

Cash flow, but are not an accrual basis

Advances affect:
expense

Freight out Selling expense

 1.
Dr. CIP
Cr. Cash (this number is costs incurred to
date). THIS NUMBER IS THE ADDED
AMOUNT ONCE GOING TO THE NEXT
Construction Contracts JE:
YEAR.

1. Record cost incurred

2.
Dr. Contracts Receivable
2. Record billings
Cr. Progress Billings

3. Record payments
3.
received
Dr. Cash
Cr. Contracts Receivable
4. Record revenue/cost
THIS NUMBER IS THE ADDED AMOUNT
during construction
ONCE GOING TO THE NEXT YEAR
period

4.
Dr. Construction Exp (costs inc to date)
Dr. CIP (this is GP recognized)
Cr. Revenue

CIP (Costs to date + GP recognized)

- Progress Billings
= Net CIP
% of Completion: balance
sheet
BS end of year two:
CIP year 1 + CIP year 2 - progress billings just
for year 2

Amounts shown on BS at 0. All accounts closed

end of contract
 Dr. Interest receivable
Accrued interest revenue
Cr. Interest income

Completed contract: CIP: only costs incurred to date - progress

GAAP. BS end of year one billings

Dr. Progress Billings

Cr. Revenue
Completed Contracts
Final journal entries
Dr. Construction Exp (costs incurred to date)
Cr. CIP

Dr. Allowance for doubtful accounts

When specific account is Cr. A/R
written off
Granted bankruptcy, debt been discharged

Remain in OCI without being reclassified to

Actuarial gain: IFRS
the IS

Change in accounting estimate

Reimbursement provision
Dr. Provision Expense
Cr. Provision Liability

A/R overstated: Record Dr. RE 164500

correction of error in prior Dr. Income taxes payable (235000 x .3)
periods Cr. A/R 235000

Correction of errors of Adjustment to beginning RE, not income

prior periods
 Determined as of the beginning of year of
Cumulative effect of change if comparative FS not presented. BS
change in accounting item: changed based on balances at end of
principle last year prior method used. If IS amounts:
Look at all past years in the aggregate

Operating leases: Make a Dr. Rent Expense

payment Cr. Cash

Summary of significant accounting policies:

Don't need specific numbers. Immaterial
items not disclosed. IFRS requires
Notes to FS disclosures of judgments, US GAAP doesn't

Debt needs to be shown cash outflows for 5

years

Going concern vs. IFRS: no guidance on liquidation accounting

liquidation

Subsequent events 1. Record JE and disclose

1. Recognized 2. Non recognized= disclosure only
2. Non recognized

Revised FS= Reissued FS

Gain contingency Don't record until they actually occur

Deductible clause The possible loss

Subsequent Event 1. Through dates FS are issued
evaluation period for a
filer 2. Through date FS are available to be issued

For a non filer

Disclose date through 1. Filers not required to disclosure

which subsequent events
evaluated 2. Non filers are required to disclose

FV doesn't include: Transaction costs. Transportation costs

But can include

FV: principal market Most volume

FV highest and best use: PPE

nonfinancial:

Share based compensation or leases

FV valuation doesn't apply

Interest in VIE if required to consolidate
to

Investment in sub if required to consolidate

1. Market
FV valuation techniques 2. Income: DCF
3. Cost: current replacement cost

Projected cash flows: Unobservable input

20 year bonds valued at Amortized cost

 Land measured at Historical cost. Not a 1,2,or 3 input

Goodwill FV- level 3

Intercompany 1. Eliminate
transactions.
2. Don't eliminate
1. Consolidation

2. Segment reporting

Revenues
- Directly traceable costs (internal and
external)
Segment profit or loss
- Reasonably allocated costs (by
management)
= Operating profit or loss EBIT

Segment reporting Only under IFRS

Liability disclosures

Segment cash flow Not reported under IFRS

Sales to external customers

75% reporting sufficiency
10%
Both internal and external customers

11-K Employee Benefit Plans

20-F Non US 10K annual report

 40-F Canadian 10K annual report

6-K Semiannual foreign private, unaudited

8-K Major events

Forms 3, 4, 5 10% owners

10Q Quarterly, unaudited

10K Annual, audited

Tag: Machine readable code

XBRL
Taxonomy: Specific tags used

Regulation S-X Filing requirements

Entire amount should be reported in the

Quarterly: amount of gain
period incurred

Cash basis, modified cash basis, tax basis,

OCBOA
regulatory basis

Cash basis revenue

+ Ending A/R
Cash basis Revenue to - Beginning A/R
accrual basis revenue - Ending unearned revenue
+ Beginning unearned revenue
= Accrual basis revenue
 Cash paid for purchase
+ Ending A/P
Cash Paid for purchases - Beginning A/P
converted to COGS - Ending Inventory
+ Beginning Inventory
= COGS

Cash paid for operating expense

+ Ending Accrued liabilities
Cash paid for operating - Beginning Accrued Liabilities
expenses --> Accrual - Ending prepaid expense
+ beginning prepaid expense
= Accrual basis operating expenses

Working Capital
Current Ratio (Working capital ratio)
Liquidity ratios
Acid-rest (quick) ratio
Cash ratio

Working capital Current assets - current liabilities

Current ratio Current assets/current liabilities

(Cash + Cash equivalents + Marketable

Acid-test (quick) ratio Securities + Net receivables)/Current
Liabilities

(Cash + Cash Equivalents + Marketable

Cash Ratio
Securities)/current liabilities
 A/R turnover, in days, Inv turnover, in days,
Activity ratios operating cycle, working capital turnover,
TAT

Net credit sales/Average net receivables

A/R turnover/days
365/AR turnover

COGS/average inventory
Inventory turnover/days
365/Inventory turnover

Inventory turnover in days + AR turnover in

Operating Cycle
days

Working capital turnover Sales/average working capital

TAT Net sales/average total assets

Net profit margin NI/Net sales