first exam

What is a missclassification ?

Wrong account within type of account

What is a misstatement?

Wrong amount, type of account, or treatment

What are the 4 most common accounting mistakes?

Misstatement, misclassification, consolidation problem, external problem

What is backlog?

Expected future value of all firm’s third party orders that have not been filled/are partially filled; represents future revenue stream of company

What is paid in capital?

Proceeds from issuance of stock in excess of par/stated value

What is NCI?

Net earnings attributable to NON-CONTROLLING INTERESTS

What is a product cost?

cost that has been previously capitalized into inventory and is transferred from INVENTORY to EXPENSE in current period as goods are sold

What is a period cost?

Cost that are NOT capitalized into inventory and remain as incurred in the current period

Free Cash Flow (FCF)

CFOA + Add. PP&E + Add. Leasehold Improvements + Add. Internal Use software

Net Income =

RE.Y2 - RE.Y1 - Dividends Paid Y2

What groups are included in period cost?

Other CoS, SG&A, R&D, Interest Expense/Taxes

What other CoS are period costs?

Fixed costs, service labor & overhead, tooling, packing materials

What is the 1st step to revenue recognition?

Identify contract w customer

What is the 2nd step to revenue recognition?

Identify performance obligation

What is the 3rd step to revenue recognition?

Determine transaction price

What is the 4th step to revenue recognition?

Allocate price to performance obligations

What is the 5th step to revenue recognition?

Recognize revenue as performance obligations are satisfied

What is the Revenue Recognition Principle?

Revenue is recognized once control over good/service has been transferred to customer

Revenue =

Sales of product + sales of service + other income

Ending Backlog =

Begin backlog + orders received - revenue + adjustments

Product cost =

DM + DL + NAO

Operating Expense (OPEX) =

CoS + R&D + SG&A

CoS =

DM + DL + VC + FC

Op Profit =

OpM + Other Income - NCI

Operating Margin (OpM)

Revenue - Other Income - OPEX

What is the primary difference between indirect & direct method of cash flow? (Long answer)

Indirect - reconciles net income from accrual basis to cash basis

Direct - reports operating cash receipts/disimbursements

What is the primary difference between indirect & direct method of cash flow? (Short answer)

How cash flow from operating activities (CFOA) is presented

CM% related to sales of goods

(Sales of goods - VCOGS) / Sales of goods

GM related to sales of services

(Sales of service - COSS) / Sales of service

VCOGS =

DM + DL + Other

Name two examples of OTHER VCOGS

Transportation + Warranty

COSS =

DM + DL + NAO + Warranty + FC

Change in PP&E =

Add. + Dispositions - Depr. + other income

What accounts in included in Adjustments to Net Income

Depr/Amort, (Gain)/Loss on sale of PP&E/Int Ass, Changes in WC, (Incr)/Decr in Other Assets, Incr/(Decr) in Other Liabilities

What accounts are included in Changes in Working Capital?

(Incr.)/Decr. in AR, (Incr.)/Decr. in Inventory, Incr./(Decr.) in AP, Incr./(Decr.) in PC

What accounts are included in CFIA (Investing Activities)

(Add) to PP&E, Disp to PP&E, (Add) to Int Assets, Disp to Int Assets

What accounts are included in CFFA (Financing Activities)?

Incr./(Decr.) in Borrowings, Dividends Paid, Purchase of Treasury Stock

What are the 2 accounts for JE for a sale of an extended warranty? (give in order of DR,CR)

Cash, PC

What are the 2 accounts for JE for a monthly revenue recognition of an extended warranty? (give in order of DR,CR)

PC, Sales of Service

What CR account would be used in a JE for providing a service? (using a product)

Finished Goods Inventory

What CR account would be used in a JE for Service Labor & Service Overhead?

Service Labor Liquidations & Service Overhead Liquidations

What are the 2 accounts for JE for billing a down OR a progress payment? (give in order of DR,CR)

AR, Progress Billing

List the two JEs for collecting a down OR a progress payment prior to revenue recognition (DR,CR & DR,CR)

Cash, AR & Progress Billing, Progress Collections

What is the JE for an ADA for a Cash Discount EXPECTED to be taken? (DR,CR)

Deferred Income, ADA

What does RPO stand for and represent?

Remaining Performance Obligation - aggregate amount of transaction price allocated to performance obligations unsatisfied as of end of reporting period

What criterion must be satisfied for something to be an RPO?

enforceable rights for both parties

List 5 criteria for an RPO to be valid

1. consent of both parties 2. Identification of rights for both parties 3. identification of payment terms 4. commercial substance 5. probable

Difference b/w Backlog & RPO?

RPO is backlog that has enforceable rights

In a bill & hold transaction, what is the JE to record removal of inventory of the product committed to the customer? (DR, CR)

Deferred Cost, FG Inventory