Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CPA_ FAR > F1:Financial Reporting > Flashcards

F1:Financial Reporting Flashcards

1
Q

What is the primary objective of accounting?

A

To measure income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the most authoritative set of accounting pronouncements?

A

The FASB Codification All pronouncements fall under the Codification umbrella

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the 2 Levels of Authority within the FASB codification?

A

Authoritative and Non-Authoritative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How does managerial accounting differ from financial accounting?

A

Managerial Accounting has a timeliness focus Managerial Accounting is not required to follow GAAP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Which financial reports are required to be filed with the SEC?

A

Form 10K - Annual and Audited Form 10Q - Quarterly and Reviewed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the focus of financial reports for individual companies?

A

Focus is on the needs of users to help them make decisions and assessments about the company Does not make assessments of the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the Primary Constraints of Financial Reporting?

A

Cost vs. Benefit Materiality

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the Secondary Constraints of Financial Reporting?

A

Consistency - Year vs. Year Comparability - Company vs. Company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the Qualitative Characteristics of Financial Reporting?

A

Relevance & Faithful Representation Relevance - Makes a difference to the user Includes: Predictive Value - Future Trends Confirming Value - Past Predictions Materiality - Could affect User Decisions Faithful Representation Includes: Completeness - Nothing omitted that would impact the decision-making of a user Neutrality - Information is presented is without bias Free from Error - No material errors or omissions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the Enhancing Qualitative Characteristics of Financial Reporting?

A

Comparability Verifiability Timeliness and Understandability Comparability - Allows users to compare different items among various periods Verifiability - Different people would reach a similar conclusion on the information presented Timeliness - Information is made available early enough to impact the decision making of users Understandability - Information is easy to understand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How does Conservatism affect the recording of accounting transactions?

A

When an estimate is necessary due to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is an accrual?

A

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a deferral?

A

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is recognition in accounting?

A

When an item is recorded and included in the financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Describe fair value with respect to an asset

A

The price you would receive if you sold the asset Assumes asset is at its highest and best value Assumes asset is sold at its most advantageous market to get the best price possible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What market assumptions are made in a fair value assessment?

A

Buyer and Seller are not Related Buyer and Seller are Knowledgeable Buyer and Seller are able to transact - i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M Buyer and Seller are both motivated to buy/sell

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What items are included in a Level 1 input in the fair value hierarchy?

A

Price quotes or market prices For example NYSE or NASDAQ

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What items are included in a Level 2 valuation input?

A

Interest rates Prime rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What items are included in Level 3 inputs of the fair value hierarchy?

A

Unobservable inputs such as assumptions or forecasts Lowest priority for valuation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are acceptable valuation techniques for fair value?

A

Market approach - uses market transactions and prices to value the asset Income approach - uses present value discounts earnings Cost approach - uses replacement cost to value the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are current assets?

A

Cash Inventory or Assets expected to be converted or consumed during a business’ operating cycle Deferred Gross Profit on Installment Sales (Contra Asset) Receivables expected to be collected in 12 months or less

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are current liabilities?

A

Liabilities that will use current assets during the present operating cycle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is an accrued liability?

A

Expense that has been incurred but not paid Example: rents payable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is a deferred revenue?

A

A type of current liability Payments that have been received but cannot be recorded as revenue yet Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

When are revenues recognized?

A

When they have been earned; i.e. company has performed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is a gain?

A

Increase in equity from an activity or event that is not central to the main activities of the business Can be operating or non-operating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is a loss?

A

Decrease in equity from an activity or event that is not central to the main activities of the business Can be operating or non-operating

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is an operating cycle?

A

Average time it takes to turn materials or services into Cash

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is the present value of future cash flows?

A

Valuation method - the current value of a future amount of money using a specific interest rate

30
Q

What is historical cost?

A

How much an asset cost - (net of depreciation and amortization)

31
Q

What is replacement cost?

A

How much it would cost to reacquire an asset today (Entrance Cost)

32
Q

What is a market cost?

A

The sale price of an asset (Exit Cost)

33
Q

What is Net Realizable Value?

A

Sale Price of an Asset - Selling/Disposal Fee

34
Q

When is royalty income recognized? How is it recognized?

A

Recognized when earned If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

35
Q

When is revenue recognized in an installment sale?

A

Revenue recognized upon receipt of cash Only used when cash collection is uncertain

36
Q

What is deferred gross profit?

A

Gross Profit that can’t be recognized until cash is received D.GP : Gross Profit % x Accounts Receivable Pay attention to the year if GP% varies

37
Q

What is the cost recovery method?

A

No revenue recognized until all costs are recovered from purchase of the asset Most conservative method of revenue recognition when collection of sale price is uncertain

38
Q

What is subscription revenue? How is it recorded?

A

Payment has been received but performance is not complete. As company performs revenue is recognized. Recorded as a Deferred Revenue (Liability) on Balance Sheet

39
Q

How are franchise revenues recorded?

A

Franchisor - Startup franchise fee revenue deferred until substantial performance Franchisee - Costs are deferred until corresponding revenue is recognized

40
Q

How do you calculate sales revenue starting from cash basis income?

A

Mnemonic: SPEAR-BAR Sales (i.e. Customer Payments) + Ending Accounts Receivable - Beginning Accounts Receivable : Sales Revenue on an Accrual Basis

41
Q

How do you calculate COGS starting from Cash Basis?

A

Mnemonic: CRAP-I Cash Remitted (i.e. paid) +Increase in Accounts Payable -Increase in Inventory :COGS on an Accrual Basis

42
Q

How are discontinued operations reported? When are they used?

A

Reported Net of Tax after Continuing Operations Company decides to cease operating a segment of its business (represents a strategic shift and has major effect on operations and financials) Includes Income (or loss) from the period plus the gain (or loss) from disposal

43
Q

For discontinued operations, what are the three requirements for disposal assets?

A

They must be Held for Sale - Sold - or Disposed of another way

44
Q

How are Unusual or Infrequent (formerly Extraordinary) items reported?

A

Reported Two Ways: 1. Income Statement above Income from Continuing Operations or 2. Footnotes. Retrospective OR Prospective Treatment is allowed.

45
Q

What is constant dollar accounting?

A

Adjusts assets to reflect a consistent level of purchasing power due to inflation Uses the Consumer Price Index (CPI)

46
Q

When are expenses recognized?

A

When they are incurred. Accrue if not yet paid.

47
Q

What are accrued expenses?

A

Those incurred but not paid. Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale) Period costs - Expenses amortized and recognized with the passage of time

48
Q

When should impaired assets be written down to fair value and expensed?

A

Immediately.

49
Q

What major items should be classified under General & Administrative (G&A) expenses?

A

Office staff salaries Office/building rent Office supplies Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

50
Q

What are business start-up costs?

A

One-time costs for opening a new business Expensed as they are incurred

51
Q

When is interest *not* expensed?

A

Interest on projects (software) for internal use is not expensed but is instead capitalized

52
Q

What are the major components of Comprehensive Income?

A

Net Income + Other Comprehensive Income (OCI): Revenues/Expenses Gains/Losses Cumulative accounting adjustments Reclassifications adjustments Non-owner changes in equity

53
Q

What items are considered cumulative accounting adjustments?

A

Foreign Currency Translation Adjustments Unrealized gains on AFS Securities Minimum Pension Liability adjustment for defined benefit plans

54
Q

What is the purpose of a reclassification adjustment?

A

Avoids double counting items that were included in both Net Income and OCI Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

55
Q

Where is Comprehensive Income reported?

A

Reported in a Single or Combined Income Statement

56
Q

What disclosures on accounting policies are required in financial statements?

A

Accounting Principles used Basis of Consolidation Inventory Pricing Methods Depreciation Method Amortization of Intangibles

57
Q

What are some major risks and uncertainties that must be disclosed?

A

Nature of Operations Use of Estimates and listing of Significant Estimates Concentration vulnerability

58
Q

Under Cash Basis Accounting how are Revenue and Expenses recognized?

A

Revenue is recognized with Cash Inflow and Expenses Recognized with Cash Outflow

59
Q

Is Cash Basis Accounting ok for Tax Returns?

A

Yes

60
Q

Is Cash Basis Accounting GAAP?

A

No - GAAP uses Accrual Accounting

61
Q

What is an advantage of Modified Cash Basis Accounting?

A

It avoids the complexities of GAAP but provides more information that Cash Basis Accounting

62
Q

Is Modified Cash Basis GAAP?

A

No - GAAP uses Accrual Accounting

63
Q

What are the 3 acceptable options for Income Tax Basis Accounting

A

Cash Basis - Accrual Basis - Hybrid Method

64
Q

What are the advantages of the Small and Medium Sized Entity Framework?

A

It simplifies reporting and disclosures for small companies - Reduces Book vs Tax differences - avoids Fair Value measurements (Historical Cost)

65
Q

What are the two options for Income Taxes under the Small and Medium Sized Entity Framework?

A

Deferred Taxes Method and Taxes Payable Method

66
Q

What are the two options for Startup Costs under the Small and Medium Sized Entity Framework?

A

Expensed or Amortized (15 years)

67
Q

How is Goodwill treated under the Small and Medium Sized Entity Framework?

A

Amortized (15 years)

68
Q

What are the required liquidation basis financial statements?

A

Statement of Net Assets in Liquidation and Statement of Changes in Net Assets in Liquidation

69
Q

What is a Development Stage Entity?

A

A company that is still in the formation stage and hasn’t yet begun principal operations or produced significant revenue

70
Q

What is the key benefit of the accounting rules for Development Stage Entities?

A

Cost savings without sacrificing financial statement usefulness

CPA_ FAR (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions