CMA Part 1 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Revenue recognition five steps

Identify the contract with the customer, identify the performance obligations, determine the transaction price, allocate the price to the obligations, and recognize revenue when each obligation is satisfied.

Lower of cost or NRV

Inventory measured under FIFO or weighted average is written down when recorded cost exceeds net realizable value, which is the estimated selling price less costs to complete and sell.

Effective interest amortization

Interest expense each period equals the bond carrying value at the start of the period times the market rate; the difference from the cash coupon adjusts carrying value toward face.

Basic earnings per share

Net income minus preferred dividends, divided by the weighted-average number of common shares outstanding during the period; it ignores all potentially dilutive securities.

Comprehensive income

Net income plus other comprehensive income items such as foreign currency translation adjustments, certain unrealized investment gains and losses, and pension and postretirement adjustments.

Right-of-use asset

The lessee's balance sheet asset representing the right to use a leased asset for the lease term, initially measured at the present value of lease payments plus initial direct costs.

High-low method

A cost estimation technique that uses the highest and lowest activity levels to compute variable cost per unit as the change in cost divided by the change in activity, then solves for fixed cost.

Coefficient of determination

R-squared, the proportion of total variation in the dependent variable explained by the independent variable; it ranges from zero to one and measures goodness of fit.

Flexible budget

A budget prepared after the period using the actual level of activity, allowing comparison of actual costs with what costs should have been at that volume.

Production budget

Budgeted unit sales plus desired ending finished goods inventory minus beginning finished goods inventory; it drives the direct materials, direct labor, and overhead budgets.

Expected value

The sum of each possible outcome multiplied by its probability; used to choose among alternatives under uncertainty when reliable probability estimates can be made.

Return on investment

Operating income divided by average operating assets; it also equals profit margin multiplied by asset turnover and can be raised by increasing either margin or turnover.

Residual income

Operating income less a capital charge computed as the required rate of return multiplied by average operating assets; it encourages managers to accept projects earning above the required return.

Economic value added

After-tax operating profit minus the weighted average cost of capital multiplied by invested capital; it approximates the economic profit created above the cost of all capital employed.

Balanced scorecard

A performance measurement framework that links financial, customer, internal business process, and learning and growth measures to the organization's strategy and vision.

Minimum transfer price

The floor price for an internal transfer: outlay or variable cost per unit plus the opportunity cost of giving up external sales on the units transferred internally.

Predetermined overhead rate

Estimated total manufacturing overhead divided by the estimated total allocation base for the period; it is multiplied by actual activity to apply overhead to jobs or products.

Equivalent units of production

The number of complete units that could have been produced given the work performed; units completed plus ending work in process multiplied by its percentage of completion.

Cost of goods manufactured

Direct materials used plus direct labor plus applied overhead plus beginning work in process minus ending work in process; the cost of units finished during the period.

Normal spoilage

Spoilage that is inherent in the production process under efficient operations; its cost is treated as a product cost and included in manufacturing overhead.

Split-off point

The stage in joint production at which joint products become separately identifiable; joint costs incurred before it must be allocated among the products on a systematic basis.

Sunk cost

A cost already incurred that cannot be changed by any current or future decision; it is excluded from relevant-cost analysis of the alternatives.

COSO control environment

The set of standards, processes, and structures providing the foundation for internal control, including tone at the top, integrity, ethical values, and organizational structure.

Segregation of duties

An internal control that assigns authorization, custody of assets, record keeping, and reconciliation to different people so no one person can both commit and conceal an error or fraud.

Preventive control

A control designed to stop an error or fraud before it enters the processing system, such as approval requirements, access restrictions, or segregation of incompatible duties.

Three lines of defense

A governance model in which operational management owns and manages risk, a risk and compliance function monitors it, and internal audit provides independent assurance to the board.

Detection risk

The risk that audit procedures fail to detect a material misstatement; the auditor controls it by adjusting the nature, timing, and extent of substantive testing.

Prescriptive analytics

The most advanced analytics category; it recommends actions by combining predictive models with optimization and business rules to determine the best course of action.

Recovery point objective

The maximum tolerable amount of data, measured in time, that an organization can lose after a disruption; it drives the required frequency of backups.

Data lake

A central repository that stores large volumes of raw structured, semi-structured, and unstructured data in native format until it is needed for analysis.

Robotic process automation

Software bots that mimic human actions to execute high-volume, rule-based, repetitive tasks across applications with structured digital inputs, typically without changing the underlying systems.

IT general controls

Controls over the IT environment as a whole, covering access security, program change management, IT operations, and backup and recovery, which support reliable functioning of application controls.