About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
2 1 2 Financial Statement Elements Explained

1 2 Financial Statement Elements Explained

Key Concepts

Assets

Assets are resources owned by a business that are expected to provide future economic benefits. They can be either current (short-term) or non-current (long-term). Examples include cash, accounts receivable, inventory, property, plant, and equipment.

Example: A manufacturing company owns machinery worth $500,000, which is a non-current asset. It also has $100,000 in cash, which is a current asset.

Liabilities

Liabilities are obligations that a business owes to external parties. They represent the claims of creditors against the assets of the business. Liabilities can also be current or non-current. Examples include accounts payable, loans, and bonds payable.

Example: A retail store owes $50,000 to suppliers for goods purchased on credit, which is a current liability. It also has a long-term loan of $200,000, which is a non-current liability.

Equity

Equity represents the residual interest in the assets of the business after deducting liabilities. It includes the capital contributed by owners and retained earnings. Equity is also known as shareholders' equity or net assets.

Example: A corporation has $1,000,000 in assets and $600,000 in liabilities. The equity, or net assets, is $400,000, which includes $200,000 in paid-in capital and $200,000 in retained earnings.

Revenue

Revenue is the income earned by a business from its normal operations. It represents the inflow of economic benefits from the sale of goods or services. Revenue is recognized when it is earned and realizable.

Example: A software company sells licenses for its software, generating $500,000 in revenue for the quarter.

Expenses

Expenses are the costs incurred by a business in the process of generating revenue. They represent the outflow of economic benefits and reduce the equity of the business. Examples include cost of goods sold, salaries, and rent.

Example: A consulting firm incurs $200,000 in salaries and $50,000 in office rent during a fiscal year, totaling $250,000 in expenses.

Examples and Analogies

Consider a business as a household. Assets are like the house, car, and savings account. Liabilities are the mortgage and car loan. Equity is the net worth of the household after paying off debts. Revenue is the income from a job, and expenses are the costs of living, such as groceries and utilities.

Another analogy is that of a bakery. Assets include the ovens, cash register, and inventory of baked goods. Liabilities are the loans taken to buy the ovens and the money owed to suppliers. Equity is the owner's investment plus profits retained in the business. Revenue comes from selling bread and pastries, while expenses include the cost of ingredients and salaries for bakers.

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