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CPA Exam > FAR - Framework > Flashcards

FAR - Framework Flashcards

1
Q

What are the 7 components of the general purpose external financial report?

A
  1. Income statement
  2. Balance sheet
  3. Statement of cash flows
  4. Statement of retained earnings
  5. Statement of comprehensive income
  6. Footnote disclosure
  7. Auditors opinion.
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2
Q

What does GAAP address?

A

Recognition, measurement, and disclosure.

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3
Q

What are the five financial statements?

A
  1. Income statement
  2. Statement of comprehensive income
  3. Balance sheet
  4. Statement of changes of shareholders equity
  5. Statement of cash flows
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4
Q

What is neutrality?

A

Free of bias

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5
Q

What are the ingredients of relevance?

A

Predictive value, confirmatory value, and materiality.

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6
Q

What is completeness?

A

Includes all data necessary to be faithfully representative.

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7
Q

What are the ingredients of faithful representation?

A

Completeness, free from material error, neutrality.

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8
Q

What is verifiability?

A

Different knowledgable and independent observers can reach similar conclusions

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9
Q

What is predictive value?

A

To be relevant, accounting information should assist financial statement users in making predictions about future events

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10
Q

What are objectives of financial reporting?

A

To provide information about the entity to current and future users of the financial statements who are making credit and investment decisions

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11
Q

List the enhancing qualitative characteristics of financial information.

A
  1. Comparability
  2. Verifiability
  3. Timeliness
  4. Understandability
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12
Q

What are the primary qualitative characteristics of financial information?

A

Faithful Representation and Relevance.

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13
Q

The four assumptions are

A
  1. Entity
  2. Going concern
  3. Unit of measurement
  4. Time period assumption.
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14
Q

The four principles are

A

Revenue recognition
Expense recognition
Measurement
Full disclosure.

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15
Q

When should a company recognize revenue?

A

When they are earned and collectibility is reasonably assured

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16
Q

What is conservatism

A

The reporting of less optimistic amounts under conditions of uncertainty

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17
Q

What does a fresh start measurement do?

A

Establishes a new carrying value after an initial recognition and is unrelated to previous amounts

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18
Q

Define cost effectiveness

A

This constraint on GAAP limits recognition and disclosure if the cost of providing the information exceeds its benefit

19
Q

What is the purpose of the SEC?

A

Enforces GAAP

20
Q

Describe the formula for quick or acid test ratio

A

(Cash + long term investment + A/R) / current liabilities

21
Q

How are assets recorded on the balance sheet

A

Declining order of liquidity

22
Q

Define net realizable value

A

The amount the firm expects to receive from the sale or collection of an item

23
Q

What is a valuation account used for

A

Used to increase or decrease the book value of an item to a measure of current value

24
Q

Define gains

A

Increases in equity or net assets from peripheral or incidental transactions

25
Q

What is the main purpose of disclosing comprehensive income?

A

To report the net change in equity in a single amount

26
Q

What is the equation to get comprehensive income?

A

CI = Net income + other comprehensive income

27
Q

What is the indirect method on the statement of cash flows

A

Reconciles net income to cash flows from operating activity

28
Q

What is the direct method on the statement of cash flows

A

Actual inflows and outflows from cash operations. Must also disclose the indirect method as a supporting schedule.

29
Q

What is the cash flow category for interest paid and received?

A

Operating activities.

30
Q

What items are in the operating activities category on the statement of cash flows?

A
  1. From customers
  2. Interest income or dividend income
  3. Sale of trading investments
  4. Suppliers and employees
  5. Government
31
Q

What items are in the investing activities category on the statement of cash flows?

A
  1. Sale/ purchase of PPE
  2. Sale/ purchase of debt or equity securities of other entities
  3. Collection of loan principles
32
Q

What items are in the financing activities category on the statement of cash flows?

A
  1. Sale of entity’s own equity securities
  2. From issuance of debt
  3. Dividends
  4. Redeem long term debt
  5. Reacquire capital stock
33
Q

Ratio

Working capital =

A

Current assets - current liabilities

34
Q

Ratio

Current ratio =

A

Current assets / current liabilities

35
Q

Ratio

AR turnover =

A

Net credit sales / average AR

36
Q

Ratio

Inventory turnover =

A

COGS / avg inventory

37
Q

Ratio

Acid ratio AKA quick ratio =

A

(Cash + net AR + marketable securities) / current liabilities

38
Q

Ratio

Times interest earned =

A

(Net income + interest expense + income tax) / interest expense

39
Q

Ratio

Average days to collect AR =

A

365 / AR turnover

40
Q

Ratio

AR turnover =

A

Credit sales / average AR

41
Q

Ratio

Profit margin =

A

Net income / sales

42
Q

Ratio

Return on assets =

A

Net income / average total assets

43
Q

Ratio

Return on Equity =

A

Net income / average common shareholders equity

44
Q

Ratio

EPS =

A

(Net income - preferred dividends) / weighted avg common shares outstanding

CPA Exam (2 decks)

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