M1 SECTION 1 NEEDS

Current asset

An asset expected to be converted to cash, sold, or used within one year or the company’s normal operating cycle, whichever is longer.

Noncurrent asset

An asset that is not expected to be converted to cash, sold, or used within one year or the normal operating cycle.

Current liability

A liability expected to be paid within one year or the company’s normal operating cycle, whichever is longer.

Noncurrent liability

A liability that is not due within one year or the normal operating cycle.

Refundable deposit

A payment that is recorded as an asset rather than an expense when the company expects to receive the money back.

Gross sales

The total amount of sales before subtracting sales returns, allowances, and discounts.

Net sales

Gross sales minus sales returns and allowances.

Gross profit

Net sales minus cost of goods sold.

Operating income

Gross profit minus operating expenses.

Net income

The company’s total revenues and gains minus expenses and losses, including taxes and discontinued operations.

Cost of goods sold

The cost assigned to inventory that was sold during the period.

Sales returns

Amounts refunded or credited to customers for returned merchandise; these reduce gross sales.

Single-step income statement

An income statement that groups all revenues and gains together and all expenses and losses together.

Multi-step income statement

An income statement that separately presents gross profit, operating income, and other income and expenses.

Net concept for gains and losses

Only the gain or loss on a transaction is reported, rather than separately showing proceeds and the asset’s carrying amount.

Gain on sale of equipment

The difference when an asset’s selling price exceeds its carrying amount; it is reported in continuing operations.

Loss on sale of equipment

The difference when an asset’s carrying amount exceeds its selling price; it is reported in continuing operations.

Unusual or infrequent gain

A gain that is unusual, infrequent, or both; under U.S. GAAP it is included in income from continuing operations.

Extraordinary items

A former accounting classification that is no longer used under U.S. GAAP.

Prior-period adjustment

A correction of a material error from a prior period that is generally recorded directly to beginning retained earnings, net of tax.

Continuing operations

The revenues, expenses, gains, and losses from the portions of a company that will continue operating.

Discontinued operation

A disposed component or component held for sale whose disposal represents a major strategic shift with a major effect on operations and financial results.

Major strategic shift

A disposal of a major line of business, major geographic area, or other significant component of the company.

Operating loss of a discontinued component

The component’s operating loss through the date it is sold or disposed of.

Disposal gain or loss

The difference between the component’s carrying amount and its selling price or fair value less cost to sell.

Discontinued operations presentation

Discontinued operations are reported separately from continuing operations and net of tax.

After-tax loss calculation

Pretax loss multiplied by one minus the tax rate.

After-tax gain calculation

Pretax gain multiplied by one minus the tax rate.

Tax benefit from a loss

The reduction in income taxes caused by a deductible loss.

Held for sale

A classification used when management commits to selling an asset or disposal group and the required criteria are met.

Measurement of an asset held for sale

The lower of carrying amount or fair value less cost to sell.

Fair value less cost to sell

The asset’s fair value minus direct incremental costs necessary to complete the sale.

Held-for-sale impairment loss

Carrying amount minus fair value less cost to sell when carrying amount is higher.

Depreciation after held-for-sale classification

Depreciation stops once a long-lived asset qualifies as held for sale.

Costs to sell

Direct incremental costs required to sell an asset, such as broker commissions and title transfer fees.

Employee severance

Generally not included in cost to sell because it is a restructuring cost rather than a direct selling cost.

Comparative discontinued operations

Prior-period financial statements are reclassified to separately present the discontinued component’s results.

Comprehensive income

All changes in equity from nonowner sources during a period.

Comprehensive income formula

Net income plus or minus other comprehensive income.

Other comprehensive income

Selected gains, losses, revenues, and expenses that bypass net income and are reported directly in equity.

Accumulated other comprehensive income

The cumulative balance of prior-period OCI items reported in stockholders’ equity.

OCI versus AOCI

OCI is the current-period activity, while AOCI is the accumulated permanent equity balance.

Net income and retained earnings relationship

Net income is closed into retained earnings.

OCI and AOCI relationship

Other comprehensive income is closed into accumulated other comprehensive income.

Owner contribution

An investment by an owner that increases equity but is excluded from comprehensive income.

Dividend

A distribution to owners that reduces equity but is excluded from comprehensive income.

Nonowner change in equity

A change caused by revenues, expenses, gains, losses, or OCI rather than by owner investments or distributions.

Purpose of comprehensive income

To summarize all changes in equity from nonowner sources.

PUFER

A mnemonic for common OCI items: Pension adjustments, Unrealized AFS debt gains and losses, Foreign currency translation adjustments, Effective cash-flow hedges, and Revaluation surplus under IFRS.

Pension adjustment in OCI

Certain defined-benefit pension gains, losses, and prior service costs that are initially reported in OCI.

Prior service cost

The cost created by a pension plan amendment granting benefits for employee service performed in prior years.

Actuarial gain or loss

A pension gain or loss caused by changes in assumptions or differences between expected and actual results.

Available-for-sale debt security

A debt investment whose unrealized gains and losses are generally reported in OCI.

Trading security

A security bought mainly for near-term resale; unrealized gains and losses are reported in net income.

Realized gain on a security

A gain recognized when a security is actually sold; it is generally reported in net income.

Unrealized gain on a security

An increase in value before sale; treatment depends on the security’s classification.

Cash-flow hedge

A hedge of exposure to variability in expected future cash flows; the effective portion is generally reported in OCI.

Fair-value hedge

A hedge of exposure to changes in fair value; gains and losses are generally reported in net income.

Effective portion of a hedge

The portion of a hedge that successfully offsets the hedged risk.

Foreign currency translation adjustment

A gain or loss from translating a foreign subsidiary’s financial statements into the reporting currency; it is reported in OCI.

Foreign currency transaction gain or loss

A gain or loss from changes in exchange rates on a foreign-currency receivable, payable, or other monetary item; it is reported in net income.

Translation versus transaction

Translation relates to foreign subsidiary financial statements and goes to OCI; transaction relates to specific receivables or payables and goes to net income.

Direct exchange-rate quotation

The amount of domestic currency required to buy one unit of foreign currency.

Indirect exchange-rate quotation

The amount of foreign currency that can be purchased with one unit of domestic currency.

Reciprocal exchange rate

One divided by the quoted exchange rate.

Spot rate

The exchange rate for immediate delivery of currency.

Forward rate

An exchange rate agreed upon today for a currency exchange that will occur in the future.

Initial foreign-currency transaction rate

The spot rate on the transaction date.

Initial recording of a foreign purchase

Foreign currency units multiplied by the transaction-date spot rate.

Initial recording of a foreign sale

Foreign currency units multiplied by the transaction-date spot rate.

Foreign-currency monetary account

A receivable, payable, note, or cash balance denominated in a foreign currency.

Year-end remeasurement

The process of adjusting a foreign-currency monetary account to the year-end spot rate.

Remeasurement gain or loss

The difference between the account’s previously recorded dollar amount and its amount using the current spot rate.

Foreign-currency receivable

A foreign-currency asset that creates a gain when the foreign currency strengthens and a loss when it weakens.

Foreign-currency payable

A foreign-currency liability that creates a loss when the foreign currency strengthens and a gain when it weakens.

Receivable exchange-rate rule

A receivable benefits when the foreign currency strengthens because it will convert into more U.S. dollars.

Payable exchange-rate rule

A payable benefits when the foreign currency weakens because fewer U.S. dollars are needed to settle it.

Settlement-date adjustment

The final gain or loss recognized when a foreign-currency receivable or payable is collected or paid.

Foreign transaction crossing year-end

The gain or loss is split between the year-end adjustment period and the later settlement period.

Unrealized foreign exchange gain

A gain caused by remeasuring an unsettled foreign-currency monetary account; it is still reported in net income.

Unrealized foreign exchange loss

A loss caused by remeasuring an unsettled foreign-currency monetary account; it is still reported in net income.

Foreign subsidiary translation loss

A decrease from translating a foreign operation’s statements; it is reported in OCI rather than net income.

Net income calculation with OCI

OCI items are excluded when calculating net income.

Comprehensive income calculation

Calculate net income first, then add gains in OCI and subtract losses in OCI.

Comprehensive income presentation

A company may use one continuous statement or two consecutive statements.

Tax effects of OCI

The related income tax effects of OCI components must be disclosed.

Gross profit formula

Net sales minus cost of goods sold.

Income from continuing operations

The after-tax income earned from all business activities that are not classified as discontinued operations.

Purchase discount

A reduction in the cost of inventory or purchases; it is not sales revenue.

Recovery of an account written off

The collection of a previously written-off receivable; it is not sales revenue.

Sales revenue

Revenue earned from selling goods or services and included in net income and comprehensive income.

Deferred revenue

A liability created when cash is received before revenue is earned.

Fair-value hedge gain or loss treatment

Reported in net income, not OCI.

Trading-security gain or loss treatment

Reported in net income, not OCI.

Available-for-sale debt unrealized gain or loss treatment

Reported in OCI, subject to impairment and other special rules.

Cash-flow hedge effective gain or loss treatment

Reported in OCI until the forecasted transaction affects earnings.

Pension prior service cost treatment

Initially recorded in OCI and later amortized into pension expense when applicable.

Nonmonetary exchange of stock for assets

An owner-related or asset acquisition transaction that is not part of comprehensive income.

Distributions to owners

Excluded from comprehensive income because they are owner transactions.

Investments by owners

Excluded from comprehensive income because they are owner transactions.