HCAFA cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves this equality.

Revenue is recognized when performance obligations are satisfied and control transfers; expenses are matched to the period of the related revenue.

Under the allowance method, Bad Debt Expense is estimated at period end; write-offs reduce Allowance and Accounts Receivable with no income statement effect.

FIFO in rising prices yields lower COGS and higher ending inventory than LIFO; LIFO liquidations can distort gross margin.

Depreciation methods: straight-line = (cost − salvage)/useful life; double-declining = 2 × (1/life) × beginning book value, ignoring salvage until the final year.

Capitalized costs include acquisition, freight, installation, and costs to bring an asset to intended use; routine maintenance is expensed.

A lease is a finance lease if any criterion is met: ownership transfer, bargain purchase option, term ≥ 75% of asset life, or PV of payments ≥ 90% of fair value.

Cash flow statement: interest paid and dividends paid are operating and financing outflows respectively; dividends received are operating inflows.

Impairment loss = carrying amount − fair value (or discounted cash flows) when carrying amount is not recoverable; loss is recognized in income.

Current ratio = current assets/current liabilities; quick ratio excludes inventory and prepaids from the numerator.

DuPont: ROE = net profit margin × asset turnover × equity multiplier; equity multiplier = assets/equity.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − tax rate); use market values of debt and equity as weights.

CAPM: Ke = risk-free rate + beta × (market return − risk-free rate).

NPV = PV of cash inflows − initial outlay; accept when NPV > 0; IRR is the discount rate where NPV = 0.

Cash conversion cycle = days inventory outstanding + days sales outstanding − days payable outstanding.

Degree of operating leverage = contribution margin/operating income; higher fixed costs raise DOL and earnings volatility.

Economic order quantity = sqrt(2 × annual demand × order cost / holding cost per unit).

Relevant costs are future costs that differ among alternatives; sunk costs and allocated fixed costs are excluded from decisions.

Special-order rule: accept if incremental revenue exceeds incremental (variable plus any added) costs and no capacity constraint is displaced.

Make-or-buy: compare avoidable fixed costs plus variable costs of making against the purchase price plus opportunity cost of freed capacity.

Contribution margin per unit of scarce resource = unit contribution margin / units of the constrained resource; allocate to the highest ratio.

Breakeven units = fixed costs/contribution margin per unit; target profit units = (fixed costs + target profit)/CM per unit.

Margin of safety = (actual sales − breakeven sales)/actual sales; measures cushion before losses.

Porter's five forces: rivalry, new entrants, substitutes, supplier power, buyer power; used to assess industry attractiveness.

SWOT pairs internal strengths/weaknesses with external opportunities/threats; strategy addresses fit between the two.

Contract formation requires offer, acceptance, consideration, capacity, and legality; the UCC governs goods, common law governs services.

Statute of frauds requires a writing for sales of goods ≥ $500, land, suretyship, and contracts not performable within one year.

Agency: an agent binds the principal when acting with actual or apparent authority; undisclosed principals may still be liable.

Negligence elements: duty, breach, causation (actual and proximate), and damages; comparative negligence reduces recovery proportionally.

Fiduciary duty includes loyalty (no conflicts or self-dealing) and care (informed, prudent decisions); the business judgment rule shields good-faith decisions.

Insider trading violates Rule 10b-5 when trading on material nonpublic information in breach of a duty; tipping is also prohibited.

Ethical frameworks: utilitarian weighs aggregate outcomes; deontological weighs duties and rights; virtue ethics weighs character.

SOX requires CEO/CFO certification of financials and internal control reporting; whistleblower retaliation is prohibited.

Internal controls: preventive (access restrictions, segregation of duties) versus detective (reconciliations, exception reports, audit logs).

Segregation of duties separates authorization, custody of assets, and recordkeeping; the same person should not perform two of the three.

Primary key uniquely identifies a row; foreign key references a primary key in another table and enforces referential integrity.

SQL: WHERE filters rows before aggregation; HAVING filters aggregated groups after GROUP BY.

Data validity checks include range, format, existence, and reasonableness tests; completeness checks test for missing records.

Descriptive, diagnostic, predictive, and prescriptive analytics form an increasing value ladder from what happened to what to do.

General IT controls (change management, access, backup) support application controls; weaknesses in general controls undermine reliance on application controls.

Correlation does not imply causation; confounding variables and selection bias threaten the validity of analytical conclusions.

Equity method applies at 20–50% ownership with significant influence; investment is increased by share of income and decreased by dividends.

Consolidation is required when control exists (generally >50% voting interest); intercompany balances and profits are eliminated.

Goodwill = purchase price − fair value of identifiable net assets acquired; it is not amortized but tested annually for impairment.

Noncontrolling interest is presented within equity on the consolidated balance sheet.

Treasury stock is a contra-equity account recorded at cost; it reduces total equity and is not an asset.

Fair value hierarchy: Level 1 quoted prices, Level 2 observable inputs, Level 3 unobservable inputs.

Unrealized gains on available-for-sale debt securities are reported in other comprehensive income until realized.

Incremental cash flows exclude financing costs and sunk costs; include opportunity costs and working capital changes.

Modified IRR and profitability index resolve ranking conflicts; PI = PV of inflows/initial investment; accept when PI > 1.

Payback ignores time value and cash flows after payback; discounted payback corrects for time value.

Depreciation tax shield = depreciation × tax rate; MACRS accelerates deductions and raises NPV versus straight-line.

Sensitivity analysis varies one input; scenario analysis varies several inputs together; simulation assigns probability distributions.

A project's cost of capital should reflect its risk, not the firm's average WACC, when project risk differs materially.

Terminal value with constant growth = final-year cash flow × (1 + g)/(WACC − g).

Absorption costing includes fixed overhead in product cost; variable costing expenses fixed overhead as a period cost.

When production exceeds sales, absorption income exceeds variable income by fixed overhead deferred in inventory.

Activity-based costing assigns overhead using cost drivers; it improves accuracy when products consume resources unevenly.

Standard cost variances: price variance = (actual price − standard price) × actual quantity; quantity variance = (actual quantity − standard quantity) × standard price.

Flexible budgets restate costs at actual volume; static budgets use planned volume, so volume effects appear as variances.

Balanced scorecard perspectives: financial, customer, internal process, and learning and growth.

Return on investment = operating income/average operating assets; residual income = operating income − (required rate × operating assets).

Corporations provide limited liability and perpetual existence but face double taxation; S corporations avoid entity-level tax with ownership limits.

Partners in a general partnership have unlimited joint and several liability; limited partners are liable only to their investment.

A limited liability company combines pass-through taxation with limited liability and flexible management.

Securities Act of 1933 governs initial registration and disclosures; Securities Exchange Act of 1934 governs trading, reporting, and antifraud rules.

FCPA prohibits bribery of foreign officials and requires accurate books and records and internal accounting controls.

Antitrust: Section 1 Sherman Act targets contracts in restraint of trade; Section 2 targets monopolization and attempts.

Employment law: Title VII prohibits discrimination based on race, color, religion, sex, or national origin; retaliation is separately actionable.

COSO internal control components: control environment, risk assessment, control activities, information and communication, and monitoring.

IT general controls include logical access, program change, and computer operations controls; they enable reliance on automated application controls.

Batch totals compare input, processed, and output counts to detect lost or duplicated transactions.

Check digits detect transcription errors in identification numbers; they do not detect transposition of two digits in all schemes.

Data normalization reduces redundancy; denormalization may be used for query performance at the cost of redundancy.

A data warehouse consolidates historical data for analysis; a data mart is a subset focused on one business area.

Audit trails should be immutable, time-stamped, and retained per policy to support forensic and compliance review.

Inventory turnover = COGS/average inventory; days inventory = 365/inventory turnover.

Accounts receivable turnover = net credit sales/average receivables; higher turnover means faster collection.

Gross margin = (sales − COGS)/sales; a declining margin may signal pricing pressure or rising input costs.

Debt-to-equity = total liabilities/total equity; times interest earned = EBIT/interest expense.

Earnings quality is lower when income is driven by nonrecurring items or aggressive revenue recognition.

Book value per share = common equity/number of common shares outstanding; it ignores intangible value and market expectations.

Free cash flow = operating cash flow − capital expenditures; it measures cash available for debt service and distributions.

Target costing: allowable cost = target price − desired profit; design costs to meet the allowable cost.

Cost-plus pricing adds a markup to cost; it ignores demand elasticity and competitor pricing.

Price elasticity of demand = % change in quantity demanded/% change in price; demand is elastic when the absolute value exceeds 1.

CVP assumes constant selling price, constant variable cost per unit, and fixed costs within the relevant range.

Segment margin = contribution margin − traceable fixed costs; common fixed costs are not allocated when judging segment profitability.

Transfer pricing at market price preserves subunit autonomy; negotiated or cost-based prices are used when no market exists.

Customer lifetime value = average purchase margin × purchase frequency × retention duration, discounted for time value.

An offer must be definite and communicated; it terminates by revocation, rejection, lapse, or operation of law (death, illegality).

Consideration requires a bargained-for exchange; past consideration and illusory promises are generally insufficient.

A material breach discharges the nonbreaching party's duty and permits damages; minor breach permits damages but not discharge.

Expectation damages place the injured party in the position performance would have produced; mitigation limits recovery.

Parol evidence rule bars prior or contemporaneous oral statements that contradict a fully integrated written agreement.

Professional codes (AICPA, IMA) require integrity, objectivity, confidentiality, and competence; independence is required for attest services.

Whistleblower protections and internal reporting channels are required elements of an effective ethics and compliance program.

Regression analysis estimates relationships between variables; R-squared measures the proportion of variance explained.

Benford's law predicts leading-digit frequency; deviations flag potential fabricated or anomalous transactions.

Data mining techniques include classification, clustering, association rules, and anomaly detection.

Machine learning models require training, validation, and test data splits to assess generalization and avoid overfitting.

Blockchain provides an immutable, distributed ledger; consensus mechanisms validate transactions without a central authority.

Robotic process automation handles rule-based, repetitive tasks; it does not learn and requires structured inputs.

Data governance assigns ownership, defines data quality standards, and controls access to protect confidentiality and integrity.