Financial Accounting and Reporting (FAR) Comprehensive Notes

Comprehensive vocabulary flashcards covering the core principles, classifications, measurements, and standards of Financial Accounting and Reporting (FAR).

Cash Equivalents

Short-term, highly liquid debt instruments that are readily convertible into known amounts of cash and acquired three months or less before maturity.

Compensating Balance

A minimum bank deposit balance required under a loan agreement; classified as part of Cash and Cash Equivalents if not legally restricted, as other Current Asset if legally restricted for a short-term loan, or as other Non-Current Asset if legally restricted for a long-term loan.

Bank Overdraft

A negative bank balance classified as a current liability, which cannot be offset against accounts with positive balances unless they are maintained in the same bank.

Deposit in Transit

A deposit that has been collected and recorded in the entity's books but has not yet been processed or credited by the bank on the bank statement.

Outstanding Checks

Checks that have been drawn and issued by the entity to payees but have not yet cleared or been presented to the bank for encashment.

Petty Cash Fund (PCF)

A fund established for paying small or minor expenditures, kept under the custody of a petty cash cashier or custodian, and replenished by recognizing the actual expenses incurred.

Net Realizable Value (NRV) of Accounts Receivable

The estimated recoverable amount of accounts receivable computed by subtracting the allowances for doubtful accounts, sales returns, and sales discounts from gross accounts receivable.

Pledging of Accounts Receivable

The use of accounts receivable as general collateral or security for a loan where receivables are not reclassified and no formal journal entry is made for the pledge itself, requiring only financial statement note disclosure.

Assignment of Accounts Receivable

A formal loan transaction where specific accounts receivable are pledged as collateral, requiring a journal entry to reclassify the receivables into an assigned accounts receivable account and disclosing the entity's equity in assigned accounts receivable.

Factoring

A financial transaction involving the outright sale of accounts receivable to a financing entity (the factor), wherein ownership of the receivables is transferred and the factor typically assumes billing and collection functions.

Discounting of Notes Receivable

The encashment of a promissory note with a financial institution before its maturity date, wherein the bank deducts a discount from the maturity value to determine net proceeds.

Periodic Inventory System

An inventory recording method typically used for high-volume, low-value items where ending inventory is determined solely through a physical count at the end of the reporting period.

Perpetual Inventory System

An inventory system that continuously records acquisitions, sales, and running inventory balances using stock cards, with physical counts performed to verify record accuracy.

Lower of Cost and Net Realizable Value (LCNRV)

The subsequent measurement standard for inventories under PAS 2, where net realizable value is defined as estimated selling price less estimated costs to complete and sell, applied ideally on an item-by-item basis.

Purchase Commitment

A firm, binding agreement between a buyer and a seller to purchase a fixed quantity of goods at a predetermined future date and fixed price to minimize the risk of price fluctuations.

Gross Profit Method

An inventory estimation approach based on the assumption that the gross profit rate remains relatively stable from period to period, commonly used for interim reporting and estimating casualty losses.

Retail Inventory Method

An inventory estimation method for retail enterprises handling large numbers of rapidly changing items with similar margins, calculating ending inventory at selling price and converting it to cost using a cost ratio.

Business Model Test

A test under PFRS 9 that evaluates how an entity manages its financial assets to generate cash flows, whether by holding to collect contractual cash flows, selling, or both.

SPPI Test

The Solely Payments of Principal and Interest test under PFRS 9, assessing whether contractual cash flows consist solely of payments of principal and interest on specified dates.

Financial Asset at Amortized Cost (FAAC)

A debt instrument classified under PFRS 9 when it passes both the hold-to-collect business model test and the SPPI test, measured initially at fair value plus transaction costs and subsequently using the effective interest method.

Financial Asset at Fair Value through Other Comprehensive Income (FVOCI)

A financial asset held under a business model to both collect contractual cash flows and sell (for qualifying debt instruments), or an equity instrument designated irrevocably without recycling, whose unrealized gains and losses are recognized in OCI.

Financial Asset at Fair Value through Profit or Loss (FVPL)

The residual classification for financial instruments held for trading, debt securities failing the business model or SPPI tests, or instruments designated at fair value to eliminate or reduce an accounting mismatch.

Significant Influence

The power to participate in the financial and operating policy decisions of the investee without having control or joint control, presumed to exist when an investor holds $20\%$ to $50\%$ of the voting power.

Equity Method

An accounting method under PAS 28 whereby the investment is initially recognized at cost and subsequently adjusted for the investor's share of post-acquisition profits, losses, and other comprehensive income of the associate, with dividends received reducing the carrying amount.

Investment Property

Land or a building (or part of a building, or both) held by the owner or lessee under a finance lease to earn rentals or for capital appreciation, governed by PAS 40.

Cash-Generating Unit (CGU)

The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets under PAS 36.

Value in Use

The present value of the future cash flows expected to be derived from the continuous use of an asset or cash-generating unit and from its ultimate disposal at the end of its useful life.

Recoverable Amount

The higher of an asset's or cash-generating unit's fair value less costs of disposal and its value in use.

Depletion

The systematic allocation of the depletable amount of a wasting asset (natural mineral resource) over its productive life, computed using the units-of-production method based on extracted units.

Wasting Asset Doctrine

An exception to the trust fund doctrine allowing extractive and mining entities to legally pay dividends to stockholders beyond retained earnings up to the amount of accumulated depletion.

Government Grant

Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with specified conditions relating to the entity's operating activities under PAS 20.

Qualifying Asset

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale, eligible for the capitalization of directly attributable borrowing costs under PAS 23.

Biological Asset

A living animal or plant managed under agricultural activity, measured upon initial recognition and at each reporting date at fair value less costs to sell under PAS 41.

Bearer Plant

A living plant that is used in the production of agricultural produce, expected to bear produce for more than one period, and has a remote likelihood of being sold except for incidental scrap, accounted for as PPE under PAS 16.

Agricultural Produce

The harvested product of an entity's biological assets, measured at the point of harvest at fair value less costs to sell under PAS 41 before subsequent accounting under PAS 2.

Provision

A present obligation of uncertain timing or amount resulting from past events that is recognized when an outflow of resources embodying economic benefits is probable and can be reliably estimated (PAS 37).

Contingent Liability

A possible obligation arising from past events whose existence will be confirmed only by uncertain future events, or a present obligation not recognized because an outflow of resources is not probable or cannot be measured reliably.

Debt Restructuring

An arrangement whereby a creditor, for economic or legal reasons related to a debtor's financial difficulties, grants concessions to the debtor that would not otherwise be granted in a normal business relationship.

Right-of-Use Asset (ROUA)

An asset representing a lessee's right to control the use of an underlying leased asset over the lease term, measured at cost including the initial lease liability, lease payments made at or before commencement, initial direct costs, and estimated restoration costs.

Direct Financing Lease

A finance lease arrangement executed by a financial or leasing institution without generating dealer or manufacturer profit, where gross investment equals the lease payments plus unguaranteed residual value.

Taxable Temporary Difference

A temporary difference between the carrying amount of an asset or liability and its tax base that will result in taxable amounts in future periods, giving rise to a deferred tax liability.

Deductible Temporary Difference

A temporary difference between the carrying amount of an asset or liability and its tax base that will result in amounts that are deductible in future periods, giving rise to a deferred tax asset.

Defined Benefit Plan

A post-employment benefit plan under PAS 19 where the employer bears the actuarial and investment risk of providing agreed-upon retirement benefit payouts to employees.

Projected Benefit Obligation (PBO)

The actuarial present value of all expected post-employment benefits attributed by the pension formula to employee service rendered prior to that date, determined using the projected unit credit method.

Asset Ceiling

The maximum allowable limit on a net defined benefit asset (prepaid benefit cost), determined as the present value of economic benefits available as refunds or reductions in future contributions.

Treasury Shares

An entity's own shares of stock that have been legitimately issued, fully paid for, and subsequently reacquired by the issuing corporation, presented as a contra-equity deduction at acquisition cost.

Share Appreciation Rights (SARs)

A cash-settled share-based payment compensation plan entitling an employee to receive a future cash payment equal to the excess of the market price of the entity's shares over a specified exercise price.

Operating Segment

A distinguishable component of an entity that engages in business activities from which it earns revenues and incurs expenses, whose operating results are reviewed by the Chief Operating Decision Maker (CODM), and for which discrete financial information is available (PFRS 8).

Adjusting Events After the Reporting Period

Events occurring between the end of the reporting period and the date the financial statements are authorized for issue that provide additional evidence of conditions that existed as of the reporting date, requiring financial statement adjustments (PAS 10).

Non-Adjusting Events After the Reporting Period

Events occurring between the end of the reporting period and the date financial statements are authorized for issue that reflect conditions arising after the reporting period, requiring note disclosure only if material.

Basic Earnings Per Share (BEPS)

A financial ratio under PAS 33 measuring profit performance per share, computed as net income minus cumulative or declared noncumulative preference dividends divided by the weighted average ordinary shares outstanding.