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Flashcards in Financial Reporting Deck (56):
1

To measure income

Financial Reporting

2

The FASB Codification

All pronouncements fall under the Codification umbrella

Financial Reporting

3

Authoritative and Non-Authoritative

Financial Reporting

4

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

Financial Reporting

5

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

Financial Reporting

6

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

Financial Reporting

7

Cost vs. Benefit

Materiality

Financial Reporting

8

Consistency - Year vs. Year

Comparability - Company vs. Company

Financial Reporting

9

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


Financial Reporting

10

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

Financial Reporting

11

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

Financial Reporting

12

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

Financial Reporting

13

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

Financial Reporting

14

When an item is recorded and included in the financial statements

Financial Reporting

15

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

Financial Reporting

16

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

Financial Reporting

17

Price quotes or market prices

For example NYSE or NASDAQ

Financial Reporting

18

Interest rates

Prime rate

Financial Reporting

19

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

Financial Reporting

20

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

Financial Reporting

21

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

Financial Reporting

22

Liabilities that will use current assets during the present operating cycle

Financial Reporting

23

Expense that has been incurred but not paid

Example: rents payable

Financial Reporting

24

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

Financial Reporting

25

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

Financial Reporting

26

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

Financial Reporting

27

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

Financial Reporting

28

Average time it takes to turn materials or services into Cash

Financial Reporting

29

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

Financial Reporting

30

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

Financial Reporting

31

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

Financial Reporting

32

The sale price of an asset (Exit Cost)

Financial Reporting

33

Sale Price of an Asset - Selling/Disposal Fee

Financial Reporting

34

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

Financial Reporting

35

Revenue recognized upon receipt of cash

Only used when cash collection is uncertain

Financial Reporting

36

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

Financial Reporting

37

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

Financial Reporting

38

Payment has been received but performance is not complete.

As company performs revenue is recognized.

Recorded as a Deferred Revenue (Liability) on Balance Sheet

Financial Reporting

39

Franchiser - Startup franchise fee revenue deferred until franchisee has completed substantial performance

Franchisee - Costs are deferred until corresponding revenue is recognized

Financial Reporting

40

Mnemonic: SPEAR-BAR

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

Financial Reporting

41

Mnemonic: CRAP-I

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

Financial Reporting

42

Reported Net of Tax after Continuing Operations but before Extraordinary Items

Company decides to cease operating a segment of its business

Includes Income (or loss) from the period plus the gain (or loss) from disposal

Financial Reporting

43

Both unusual AND infrequent

Reported Net of Tax after Discontinued Operations

Note: Usual *or* Infrequent Items are reported as part of Continuing Operations

Financial Reporting

44

Adjusts assets to reflect a consistent level of purchasing power due to inflation

Uses the Consumer Price Index (CPI)

Financial Reporting

45

When they are incurred. Accrue if not yet paid.

Financial Reporting

46

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

Financial Reporting

47

Immediately.

Financial Reporting

48

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

Financial Reporting

49

One-time costs for opening a new business

Expensed as they are incurred

Financial Reporting

50

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

Financial Reporting

51

Net Income + Other Comprehensive Income (OCI):

Revenues/Expenses

Gains/Losses

Cumulative accounting adjustments

Reclassifications adjustments

Non-owner changes in equity

Financial Reporting

52

Foreign Currency Translation Adjustments

Unrealized gains on AFS Securities

Minimum Pension Liability adjustment for defined benefit plans

Financial Reporting

53

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

Financial Reporting

54

Reported in a Single or Combined Income Statement

Financial Reporting

55

Accounting Principles used

Basis of Consolidation

Inventory Pricing Methods

Depreciation Method

Amortization of Intangibles

Financial Reporting

56

Nature of Operations

Use of Estimates and listing of Significant Estimates

Concentration vulnerability

Financial Reporting