Foreign Currency Transactions, EPS, and Revenue Recognition Flashcards

A comprehensive set of vocabulary flashcards covering foreign currency adjustments, complex earnings per share calculations, and the ASC $$606$$ five-step revenue recognition framework.

Functional Currency

The currency of the Primary Economic Environment where the company mainly generates and spends cash.

Foreign Currency

Any currency classified strictly as such relative to the reporting entity.

Current Exchange Rate

The immediate Spot Rate used for currency conversion on any given evaluation date.

External Terms

Transactions whose settlement terms are fixed in a currency different from the functional currency.

Initial Measurement Date

The date a transaction occurs and is recorded using the spot rate.

Subsequent Balance Sheet Date

The date when unsettled monetary accounts are updated to the period-end spot rate.

Settlement Date

The final cash payment day where the ultimate settlement spot rate determines closing balances.

Monetary Accounts

Accounts revalued at year-end with impact included in current period earnings, such as Accounts Receivable, Accounts Payable, Notes Receivable, and Notes Payable.

Nonmonetary Accounts

Accounts maintained at historical cost with no year-end revaluation, including Inventory, Equipment, Land, Fixed Assets, and Capital Stock.

Basic EPS (BEPS) Numerator (Cumulative Preferred Stock)

Reduction of Net Income by the current year annual dividend amount only, even if the dividend was not declared or if the entity had a net loss.

Basic EPS (BEPS) Numerator (Noncumulative Preferred Stock)

Reduction of Net Income by the dividend amount only if it was explicitly declared during the current period.

Weighted-Average Shares Logic (Stock Dividends and Splits)

Treated as if they occurred at the very beginning of the earliest period presented, regardless of their actual historical date or if they occur after the reporting period but before issuance.

Treasury Stock Method

Assumes options and warrants are exercised at the beginning of the period and proceeds are used to repurchase treasury stock at the average market price.

If-Converted Method (Convertible Bonds)

Assumes conversion at the beginning of the period, adding back after-tax interest expense to the numerator and increasing the denominator by the number of issuable common shares.

If-Converted Method (Convertible Preferred Stock)

Assumes conversion at the beginning of the period, adding back the preferred dividend to the numerator and increasing the denominator by the number of issuable common shares.

Antidilutive Security

A security that increases the trial DEPS value instead of decreasing it; it is excluded from final Diluted EPS presentation.

Step $1$: Identify the Contract

The first stage of the $5$-step revenue model requiring a formal agreement with commercial substance and clear collection probability.

Step $2$: Separate Performance Obligations

The stage where all distinct promises to deliver goods or services are isolated from the contract bundle.

Step $3$: Transaction Price

The total amount of consideration expected in exchange for goods or services, adjusted for variable factors or financing components.

Step $4$: Allocate Price

Distributing the total transaction price across each separate performance obligation based on standalone values.

Step $5$: Recognize Revenue

Recording revenue only when or as the entity satisfies each individual performance obligation.

Capable of Being Distinct

A good or service where the customer can benefit from the item on its own or with available resources.

Residual Approach

A method to estimate standalone selling price by subtracting the sum of observable SSPs of other items from the total transaction price.

Principal

The party that controls the goods or services; they recognize the gross amount of revenue.

Agent

The party that does not control the inventory and recognizes revenue net of its commission.

Ongoing Consumption (Criterion O)

Revenue recognition criterion where the customer simultaneously receives and consumes economic benefits as the performance occurs.

Work-in-Process Control (Criterion W)

Revenue recognition criterion where the entity's performance creates or enhances an asset the customer controls as it is being built.

No Alternative Use + Enforceable Right (Criterion N)

Revenue recognition criterion where an asset has no alternative use to the vendor AND the vendor has a legally enforceable right to payment for performance completed to date.

Input Method

Measuring progress toward completion based on efforts expended, such as costs incurred ($\text{cost-to-cost}$), labor hours worked, or resources consumed.

Output Method

Measuring progress toward completion based on direct results, such as units produced, units delivered, milestones achieved, or physical surveys.

Long-Term Contract Loss Treatment

Under US GAAP, if an overall contract loss is projected, the entire estimated loss must be recognized immediately in the current period.

Construction in Progress (CIP)

An asset account used in long-term construction that is closed out against Progress Billings upon final delivery.