Memory Aids Flashcards
Governs the form and content of financial statements and financial disclosures
Regulation S-K
Governs the form and content of nonfinancial disclosures, like the MD&A
SEC reporting requirements
10-K, 10-Q, 8-K
Basic accounting equation for the balance sheet (statement of financial position)
Other basis of accounting, cash basis, modified cash basis, and income tax basis
Other basis of accounting
Statements not in conformance with GAAP.
Cash basis
Revenues and expenses are only recognized when cash is received or paid.
Modified cash basis
Cash basis is used for regular operating activities but modifications are used for reporting items like inventory, accruing income taxes and capitalizing and depreciating fixed assets.
Income tax basis
Applied to calculate income tax liability.
Accounting changes
Changing from one GAAP principle to another like LIFO to FIFO. This requires retrospective application but is not considered a restatement.
Changes in accounting estimates occur from new information. The change is recorded in the period of change and any future periods.
A change in estimate is inseparable from a change in principle and will be accounted for as a change in estimate.
Error correction
A mathematical mistake, a mistake in GAAP application, or an oversight or misuse of facts when the statements were originally prepared.
A change from non-GAAP to GAAP is an error correction, not a change in principle.
Previous statements need to be revised and restated. Carrying amounts are adjusted for the cumulative effect (CE) of the error on the prior periods.
Level 1 inputs - most reliable since quoted prices come from identical assets and liabilities.
Level 2 inputs - observable inputs where quoted prices can be found in similar active and nonactive markets, and inputs that are not quoted prices.
Level 3 inputs - least reliable since there are no observable inputs and should be quoted based on the best available information for the circumstances.
Inventory items in transit
FOB Shipping Point - the control of goods passes to the buyer once shipped
FOB Destination - the control of goods stays with the supplier until the items arrive at the buyer
Weighted-average method
A periodic inventory system that determines the average cost at the end of the period.
Uses the lower cost of net realizable value