FAR Flashcards
What is the primary objective of accounting?
To measure income
What is the most authoritative set of accounting pronouncements?
The FASB Codification
What are the 2 Levels of Authority within the FASB codification?
Authoritative and Non-Authoritative
How does managerial accounting differ from financial accounting
Managerial Accounting has a timliness focus
Which financial reports are required to be filed with the SEC
Form 10K - Annual and Audited
What is the focus of financial reports for individual companies?
Focus is on the needs of users to help them make decisions and assessments about the company
What are the Primary Constraints of Financial Reporting?
Cost vs. Benefit
What are the Secondary Constraints of Financial Reporting?
Consistency - Year vs. Year
What are the Qualitative Characteristics of Financial Reporting?
Relevance & Faithful Representation
What are the Enhancing Qualitative Characteristics of Financial Reporting?
Comparability
Verifiability
Timeliness
Understandability
How does Conservatism affect the recording of accounting transactions
When an estimate is necessary to to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company
What is an accrual?
Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet
What is a deferral?
Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)
What is recognition in accounting?
When an item is recorded and included in the financial statements.
Describe fair value with respect to an asset
The price you would receive if you sold the asset
What market assumptions are made in a fair value assessment?
Buyer and Seller are not Related
What items are included in a Level 1 input in the fair value hierarchy?
Price quotes or market prices
What items are included in a Level 2 valuation input?
Interest rates
What items are included in Level 3 inputs of the fair value hierarchy?
Unobservable inputs such as assumptions or forecasts
What are acceptable valuation techniques for fair value?
Market approach - uses market transactions and prices to value the asset
What are current assets?
Cash
What are current liabilities?
Liabilities that will use current assets during the present operating cycle.
What is an accrued liability?
Expense that has been incurred but not paid
What is a deferred revenue?
A type of current liability
When are revenues recognized?
When they have been earned; i.e. company has performed
What is a gain?
Increase in equity from an activity or event that is not central to the main activities of the business
What is a loss?
Decrease in equity from an activity or event that is not central to the main activities of the business
What is an operating cycle?
Average time it takes to turn materials or services into Cash
What is the present value of future cash flows?
Valuation method - the current value of a future amount of money using a specific interest rate
What is historical cost?
How much an asset cost - (net of depreciation and amortization)
What is replacement cost?
How much it would cost to reacquire an asset today (Entrance Cost)
What is a market cost?
The sale price of an asset (Exit Cost)
What is Net Realizable Value?
Sale Price of an Asset - Selling/Disposal Fee
When is royalty income recognized? How is it recognized?
Recognized when earned
When is revenue recognized in an installment sale?
Revenue recognized upon receipt of cash
What is deferred gross profit?
Gross profit that can’t be recognized until cash is received
What is the cost recovery method?
No revenue recognized until all costs are recovered from purchase of the asset
WHat is subscription revenue? How is it recorded?
Payment has been received but performance is not complete
How are franchise revenues recorded?
Franchisor - Startup franchise fee revenue deferred until substancial performance
How do you calculate sales revenue starting from cash basis income?
Mnemonic: SPEAR-BAR
How do you calculate COGS starting from Cash Basis?
Mnemonic: CRAP-I
How are discontinued operations reported? When are they used?
Reported Net of Tax after Continuing Operations but before Extra Ordinary Items……IDEA
What qualifies as an extraordinary item? How is it recorded?
Both unusual AND infrequent
What is contant dollar accounting?
Adjusts assets to reflect a consistent level of purchasing power due to inflation
When are expenses recognized?
When they are incurred. Accure if not yet paid.
What are accrued expenses?
Those incurred but not paid
When should impaired assets be written down to fair value and expensed?
Immediately
What are business start-up costs?
One-time costs for opeing a new business
When is interest “not” expensed?
Interest on projects (software) for internal use is not expensed but is instead capitalized
What major items should be classified under General & Administrative (G&A) expenses?
Office staff salaries
What are the major components of Comprehensive Income?
Net Income + Other Comprehensive Income (OCI)
What items are considered cumulative accounting adjustments?
Foreign Currency Translation Adjustments
What is the purpose of a reclassification adjustment?
Avoids double counting items that were included in both Net Income and OCI
Where is Comprehensive Income Reported?
Reported in a Single or Combined Income Statement
What disclosures on accounting policies are required in financial statements?
Accounting principles used
What are some major risks and uncertainties that must be disclosed?
Nature of operations
