BB AD Exam cheat sheet

Accounting equation: Assets = Liabilities + Equity; every transaction preserves this equality, so record each entry with equal debits and credits.

Accrual basis: recognize revenue when the performance obligation is satisfied and expenses when incurred, independent of cash timing; deferrals and accruals correct mismatches.

Revenue recognition five steps: identify the contract, identify performance obligations, determine transaction price, allocate price to obligations, recognize revenue as each obligation is satisfied.

Inventory costing: FIFO leaves the newest costs in ending inventory; LIFO leaves the oldest; weighted average smooths price changes; LIFO liquidation inflates income when old layers sell.

Lower of cost or net realizable value applies to inventory; impairment write-downs are generally not reversed under US GAAP but may be reversed under IFRS for inventory.

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

Lease classification (lessee): a lease is a finance lease if it transfers ownership, contains a bargain purchase option, term is major part of asset life, or present value of payments is substantially all of fair value.

Statement of cash flows: operating (indirect method starts with net income, adjusts noncash items and working capital), investing (long-term assets), financing (debt and equity).

Consolidation: parent with control consolidates subsidiary; intercompany balances and profits are eliminated, and noncontrolling interest is reported within equity.

Contribution margin = sales minus variable costs; contribution margin ratio = contribution margin / sales; breakeven units = fixed costs / unit contribution margin.

Target profit volume = (fixed costs + target profit) / unit contribution margin; margin of safety = (actual sales minus breakeven sales) / actual sales.

Absorption costing includes fixed overhead in product cost; variable costing expenses fixed overhead immediately, so income differences equal fixed overhead in ending inventory under absorption.

Predetermined overhead rate = estimated total overhead / estimated allocation base; applied overhead = rate times actual base; underapplied means actual exceeds applied.

Overhead variances: spending variance = actual overhead minus flexible-budget overhead; volume variance arises from producing at a level different from the denominator volume.

Standard cost variances: materials price = (actual price minus standard price) times actual quantity; materials quantity = (actual quantity minus standard quantity) times standard price.

Labor variances: rate = (actual rate minus standard rate) times actual hours; efficiency = (actual hours minus standard hours) times standard rate.

Relevant costs are future costs that differ among alternatives; sunk costs and allocated common fixed costs are irrelevant to a special-order or keep-or-drop decision.

Transfer pricing: minimum transfer price for a selling division with no spare capacity equals variable cost plus opportunity cost (lost contribution margin).

Time value: future value = present value times (1 + r)^n; present value of an annuity = payment times [1 minus (1 + r)^-n] / r.

Net present value discounts incremental after-tax cash flows at the cost of capital; accept projects with positive NPV; IRR is the rate making NPV zero and can mislead with nonconventional cash flows.

Weighted average cost of capital = (E/V) times cost of equity plus (D/V) times after-tax cost of debt; after-tax cost of debt = pretax rate times (1 minus tax rate).

Cost of equity via CAPM = risk-free rate plus beta times market risk premium; the dividend growth model gives cost of equity = expected dividend / price plus growth.

Capital asset pricing beta measures systematic risk; unsystematic risk is diversifiable and is not compensated with a risk premium.

Working capital: current ratio = current assets / current liabilities; quick ratio excludes inventory; cash conversion cycle = days inventory plus days receivable minus days payable.

Leverage: degree of operating leverage = contribution margin / operating income; degree of financial leverage = operating income / pretax income; combined leverage is their product.

Dividend policy: residual dividend model funds equity needs from retained earnings first; a stock split or stock dividend changes share count but not total equity.

Contract formation requires offer, acceptance, consideration, capacity, and legality; the mirror image rule requires acceptance to match the offer, and a counteroffer terminates the original offer.

Statute of Frauds requires a writing for contracts involving land, suretyship, marriage consideration, goods of $500 or more (UCC), and contracts not performable within one year.

UCC sale of goods: perfect tender rule lets a buyer reject nonconforming goods; acceptance occurs after a reasonable opportunity to inspect; revocation requires a substantial impairment.

Agency: actual authority may be express or implied; apparent authority arises from a principal's manifestations to a third party; undisclosed principals may be liable on authorized contracts.

Business entities: general partners have unlimited liability and mutual agency; limited partners are passive; corporation shareholders have limited liability; an LLC offers limited liability with pass-through taxation.

Securities law: Securities Act of 1933 regulates initial offerings and requires registration and a prospectus; the Securities Exchange Act of 1934 governs trading, reporting, and antifraud Rule 10b-5.

Antitrust: Section 1 of the Sherman Act targets contracts and conspiracies in restraint of trade; Section 2 targets monopolization; the Clayton Act addresses price discrimination and mergers.

Employment law: Title VII prohibits discrimination based on race, color, religion, sex, and national origin; the ADEA covers age 40 and over; the FLSA sets minimum wage and overtime rules.

Bankruptcy: Chapter 7 is liquidation with a discharge; Chapter 11 is reorganization; Chapter 13 adjusts debts of individuals with regular income; the automatic stay halts collection actions.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price; demand is elastic when the absolute value exceeds 1 and total revenue falls with a price increase.

Income elasticity is positive for normal goods and negative for inferior goods; cross elasticity is positive for substitutes and negative for complements.

A profit-maximizing firm produces where marginal revenue equals marginal cost; in perfect competition price equals marginal revenue, so output expands until price equals marginal cost.

Short-run costs: total cost = total fixed cost plus total variable cost; marginal cost intersects average total cost at its minimum; economies of scale lower long-run average cost.

A monopoly restricts output and charges above marginal cost; deadweight loss measures lost total surplus relative to the competitive outcome.

GDP measured by expenditure = consumption plus investment plus government purchases plus net exports; real GDP adjusts nominal GDP using a price index.

Inflation: demand-pull arises from aggregate demand growth; cost-push from input cost increases; the CPI compares a fixed basket's cost across periods.

Central bank tools: open market operations, discount rate changes, and reserve requirement changes; expansionary policy lowers rates to raise aggregate demand.

Comparative advantage: a nation gains from trade by specializing where its opportunity cost is lowest, even if it holds an absolute advantage in everything.

Internal control framework (COSO): control environment, risk assessment, control activities, information and communication, and monitoring; IT general controls support the reliability of application controls.

Access controls: authentication verifies identity, authorization grants permissions, and least privilege limits access to what a role requires; segregation of duties separates custody, authorization, and recordkeeping.

Data analytics types: descriptive (what happened), diagnostic (why), predictive (what will happen), and prescriptive (what action to take).

Data quality dimensions: completeness, accuracy, validity, consistency, timeliness, and uniqueness; dirty data undermines any analytic conclusion regardless of model quality.

CAATs and audit software test full populations rather than samples; exception testing flags records violating a rule, and Benford's law analysis detects anomalous digit distributions.

Key IT risks: unauthorized access, data loss, malware, phishing, and unpatched systems; encryption protects data at rest and in transit, and backups require tested restoration.

Database terms: primary key uniquely identifies a row, foreign key links tables, and normalization reduces redundancy; SQL SELECT with WHERE, GROUP BY, and JOIN retrieves and aggregates data.

Cloud computing service models: IaaS provides infrastructure, PaaS provides a development platform, and SaaS provides finished applications; shared responsibility splits provider and customer duties.

Project and change management: user acceptance testing validates fitness before go-live, and version control plus approval workflows prevent unauthorized changes to production systems.