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 Financial Accounting and Reporting (FAR) Explained

Financial Accounting and Reporting (FAR) Explained

Key Concepts

Financial Statements

Financial statements are the primary means of communicating financial information about a business to external users. The main financial statements include the Balance Sheet, Income Statement, Statement of Cash Flows, and Statement of Changes in Equity.

Example: A Balance Sheet shows the company's assets, liabilities, and equity at a specific point in time, providing a snapshot of the company's financial position.

Accounting Principles

Accounting principles are the guidelines and rules that govern the preparation of financial statements. These include the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). These principles ensure consistency and comparability in financial reporting.

Example: The principle of accrual accounting requires that revenues and expenses be recognized when they are incurred, not when cash is received or paid.

Revenue Recognition

Revenue recognition is the process of recording revenue in the financial statements. According to GAAP, revenue should be recognized when it is earned and realizable. This typically occurs when goods are delivered or services are rendered.

Example: A software company recognizes revenue from a long-term contract over the period of service delivery, rather than when the payment is received.

Expense Recognition

Expense recognition involves recording the costs incurred in generating revenue. Expenses are recognized in the period in which they are incurred, following the matching principle, which aligns expenses with the revenues they help generate.

Example: A manufacturing company recognizes depreciation expense on its machinery over the useful life of the machinery, matching the expense with the revenue generated from the machinery's use.

Inventory Valuation

Inventory valuation is the process of determining the cost of inventory on hand at the end of an accounting period. Common methods include First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and Weighted Average Cost. The choice of method can significantly impact the financial statements.

Example: Using FIFO, the cost of goods sold is based on the oldest inventory costs, while using LIFO, the cost of goods sold is based on the most recent inventory costs.

Examples and Analogies

Consider financial statements as a "report card" for a business, showing its financial health. Accounting principles are like the "rules of the game" that ensure everyone plays fairly and consistently.

Revenue recognition is like "counting your chickens" when they hatch, not when you sell them. Expense recognition is like "paying the piper" when the music stops, matching the cost of the party with the enjoyment received.

Inventory valuation is like "stacking your books" in different ways. FIFO stacks them from the bottom up, while LIFO stacks them from the top down, each giving a different view of the inventory cost.

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