FAR SU2 Flashcards
Learn FAR SU2
What is a Current Asset?
Cash and other assets or resources commonly identified as reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. If the cycle is less than a year, 1 year is the period used for segregating current from noncurrent assets.
Examples of Current Assets
- Cash and cash equivalents
- Certain individual trading, available-for-sale, and held-to-maturity debt securities
- Receivables
- Inventories
- Prepaid expenses
- Certain individual investments in equity securities
What is a Noncurrent Asset?
Noncurrent assets are those not qualifying as current
What are Investment and Funds?
Investments and funds include nonoperating items intended to be held beyond the longer of 1 year or the operating cycle.
Examples of Investment and Funds
- Investments in equity securities made to control or influence another entity
- Other noncurrent equity securities. Certain individual available-for-sale and held-to-maturity debt securities may be noncurrent.
- Funds restricted as to withdrawal or use for other than current operations, for example, to:
a. Retire long-term debt,
b. Satisfy pension obligations, or
c. Pay for the acquisition or construction of noncurrent assets - Capital assets not used in current operations, such as:
a. Idle facilities or
b. Land held for a future plant site
What is Property, Plant, and Equipment (PPE)?
Tangible operating items recorded at cost and reported net of any accumulated depreciation.
They include
- Land and natural resources subject to depletion, e.g., oil and gas
- Buildings, equipment, furniture, fixtures, leasehold improvements, land improvements, noncurrent assets under construction, and other depreciable assets
What are Intangible Asset
Intangible assets are nonfinancial assets without physical substance.
Examples are patents and goodwill.
Example of Other Noncurrent Assets
Deferred tax assets and long-term receivables.
Examples of Current Liabilities
a. Trade payables
b. Other payables arising operations (such as accrued wages, salaries, rentals, royalties, and taxes).
c. Unearned revenues
d. Short term notes
e. Payments on the current portion of serial bonds or other noncurrent debt
When is a Noncurrent Obligation callable?
Noncurrent obligations callable at the balance sheet date because of a violation of the debt agreement or that will become callable if the violation is not cured within a specified period.
What do Current Liabilities NOT include?
Current obligations if an entity
(a) intends to refinance them on a noncurrent basis and;
(b) demonstrates an ability to do so.
What are Noncurrent Liabilities?
Noncurrent liabilities are those not qualifying as current. The noncurrent portions of the following items are reported in this section of the balance sheet:
- Noncurrent notes and bonds
- Lease liability
- Most postretirement benefit obligations
- Obligations under product or service warranty agreements
- Advances for noncurrent commitments to provide goods or services
- Deferred revenue
- Deferred tax liabilities arising from interperiod tax allocation are classified as noncurrent.
What is Equity or Net Assets?
The residual after total liabilities are subtracted from total assets.
What is included in Equity?
- Equity consists of the following:
a. Capital contributed by owners (par value of common and preferred stock issued and additional paid-in capital)
b. Retained earnings (income reinvested)
c. Accumulated other comprehensive income (all comprehensive income items not included in net income)
d. The noncontrolling interest in a consolidated entity
What is a Nominal Account?
A temporary account (Income Statement Accounts)
What is a Real Account?
A permanent account (Balance Sheet Accounts)
What are the 3 formats of Income Statements?
- Single-Step
- Multiple-Step
- Condensed
What is a Single-Step Income Statement used for?
The single-step income statement provides one grouping for revenues and gains and one for expenses and losses. The single step is the one subtraction necessary to arrive at net income.
What is a Multiple-Step Income Statement used for?
The multiple-step income statement matches operating revenues and expenses in a section separate from nonoperating items. It enhances disclosure by presenting subtotals.
What is a Condensed Income Statement used for?
The condensed income statement is the most common method of presentation. It includes only the section totals of the multiple-step format. The enhanced disclosure of each line item is presented in the notes to the financial statements.
What is Cost of Goods Sold?
Cost of goods sold equals purchases for a retailer or cost of goods manufactured (COGM) for a manufacturer, adjusted for the change in finished goods (FG) in inventory.
Beginning FG inventory \+ Purchases or COGM \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Goods available for sale – Ending FG inventory \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Cost of goods sold
What is Cost of Goods Manufactured?
Beginning work in process \+ Sum of periodic manufacturing costs – Ending work-in-process \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Cost of goods manufactured
OR
Ending FG inventory \+ Cost of goods sold – Beginning FG inventory \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Cost of goods manufactured
Examples of Selling Expenses
- Examples include:
a. Sales representatives’ salaries, commissions, and traveling expenses;
b. Sales department rent, salaries, and depreciation; and
c. Communications (e.g., Internet) costs. - Shipping costs also may be classified as selling costs.
- Advertising costs should be expensed either as incurred or when advertising first occurs.
What are Administrative (General) Expenses?
Administrative (general) expenses are incurred for the direction of the entity as a whole and are not related entirely to a specific function, e.g., selling or manufacturing. They include:
- Accounting, legal, and other fees for professional services;
- Officers’ salaries;
- Insurance;
- Wages of office staff;
- Miscellaneous supplies; and
- Office occupancy costs.
Accounting for material items that are unusual in nature and infrequent in occurrence
Material items that are unusual in nature, infrequent in occurrence, or both are reported as a separate component of income from continuing operations.
- These items must not be reported net of taxes.
- Gains or losses of a similar nature that are not individually material must be aggregated.
- The nature and financial effect of each item is disclosed in the notes to the financial statements or reported in the income statement.
- The effects of such items on earnings per share must not be presented on the income statement.
What transactions are not included in Net Income?
- Transactions with owners,
- Error corrections,
- Items reported initially in other comprehensive income,
- Transfers to and from appropriated retained earnings, and
- Effects on prior periods of accounting changes.
What transactions change the Statement of Retained Earnings?
- Net income (loss) for the period
- Any prior-period adjustments, net of tax
- Dividends declared
- Certain other rare items, e.g., reissuance of treasury stock under the cost method
What is the Modified Cash Basis?
The modified cash basis uses the cash basis for typical operating activities with modifications having substantial support, for example, reporting inventory, accruing income taxes, and capitalizing and depreciating fixed assets.
This method often is used by professional services firms, such as physicians, realtors, and architects.
What terms indicate operating activities?
Revenues
Expenses
What terms indicate non-operating activities?
Gains
Losses
