Intermediate Accounting Practice cheat sheet

Objective of general purpose financial reporting: provide financial information about the reporting entity useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

Fundamental qualitative characteristics: relevance (predictive value, confirmatory value, or both, including materiality) and faithful representation (complete, neutral, free from error). Enhancing characteristics: comparability, verifiability, timeliness, understandability.

Elements: assets (present right to economic benefit controlled by the entity from a past transaction), liabilities (present obligation to transfer an economic benefit from a past event), equity, income, expenses.

Recognition requires relevance and faithful representation; derecognition occurs when the element no longer meets the definition or is no longer recognizable.

Measurement bases: historical cost, fair value, value in use/fulfilment value, current cost. Fair value is an exit price in an orderly transaction between market participants at the measurement date.

Fair value hierarchy: Level 1 quoted prices in active markets for identical assets/liabilities; Level 2 observable inputs other than Level 1; Level 3 unobservable inputs.

Standard-setting due process: research/agenda, exposure draft, public comment, redeliberation, final standard; the IASB and FASB are independent private-sector bodies, not government agencies.

Materiality: information is material if omitting or misstating it could influence decisions of primary users; materiality is entity-specific and a matter of judgment.

Going concern, accrual basis, and the periodicity assumption underlie preparation of general purpose financial statements.

Five-step model: (1) identify the contract with a customer, (2) identify performance obligations, (3) determine the transaction price, (4) allocate the transaction price, (5) recognize revenue when (or as) each obligation is satisfied.

A contract exists only if it has approval, identifiable rights, payment terms, commercial substance, and probable collection of consideration.

Variable consideration is estimated using the expected value (sum of probability-weighted amounts) or most likely amount, constrained to the amount for which a significant revenue reversal is not probable.

Transaction price excludes amounts collected on behalf of third parties (e.g., sales taxes) and includes significant financing components when the timing gap exceeds one year, subject to practical expedient.

Allocate the transaction price based on relative standalone selling prices; use adjusted market assessment, expected cost plus margin, or residual approach when prices are not directly observable.

Recognize revenue over time if the customer simultaneously receives and consumes benefits, the asset created has no alternative use and the entity has an enforceable right to payment, or the asset has no alternative use and progress is controlled by the customer; otherwise at a point in time.

Over-time progress measured by input methods (costs incurred) or output methods (units delivered, milestones); choose a method that faithfully depicts transfer of control.

Contract costs: incremental costs of obtaining a contract are capitalized if recoverable (practical expedient if amortization period is one year or less); costs to fulfil are capitalized if they relate directly to a contract, generate resources, and are expected to be recovered.

Principal versus agent: principal controls the specified good or service before transfer and recognizes gross revenue; agent recognizes commission or fee net.

Bank reconciliation: adjusted bank balance = bank statement balance + deposits in transit − outstanding checks ± bank errors; adjusted book balance = book balance + collections/interest − service charges − NSF checks ± book errors.

Cash equivalents: short-term, highly liquid investments with original maturities of three months or less, readily convertible to known amounts of cash with insignificant risk of value change.

Accounts receivable are initially measured at transaction price; subsequent measurement uses the allowance method. Expected credit losses are estimated under an expected-loss model rather than waiting for incurred losses.

Allowance estimation methods: percentage of credit sales (income statement approach), percentage of ending receivables (balance sheet approach), and aging of receivables.

Notes receivable: interest = principal × annual rate × time in years; discounting a note at a bank yields proceeds = maturity value − bank discount.

Inventory cost includes purchase price, import duties, freight-in, and conversion costs; excludes abnormal waste, storage (unless necessary), and selling costs.

Cost flow: specific identification; FIFO (first costs to cost of goods sold); weighted-average (cost of goods available ÷ units available). LIFO is prohibited under IFRS but permitted under US GAAP.

Lower of cost and net realizable value (IFRS, and US GAAP for FIFO/weighted-average); LIFO and retail method use lower of cost or market with market bounded by NRV ceiling and NRV − normal profit floor.

Gross profit method estimates ending inventory: cost of goods sold = sales × (1 − gross profit rate); ending inventory = cost of goods available − estimated cost of goods sold.

Initial measurement of PP&E at cost, including purchase price net of discounts, directly attributable costs to bring the asset to location and condition, and estimated dismantling/restoration costs.

Depreciation methods: straight-line = (cost − residual) ÷ useful life; double-declining balance = 2 × straight-line rate × beginning carrying amount; units-of-production = (cost − residual) × units produced ÷ total expected units.

Component depreciation is required under IFRS when parts have significantly different useful lives; changes in estimate are applied prospectively as a change in accounting estimate.

Revaluation model (IFRS): revalue to fair value; increases go to OCI and accumulate in revaluation surplus; decreases are expensed to the extent they exceed prior surplus. US GAAP does not permit revaluation of PP&E.

Borrowing costs directly attributable to a qualifying asset are capitalized; capitalization begins when expenditures and borrowing costs are incurred and activities are underway, and ceases when the asset is substantially ready for use.

Intangible assets: finite-life intangibles are amortized over useful life and tested for impairment when indicators exist; indefinite-life intangibles and goodwill are not amortized but tested annually for impairment.

Impairment (US GAAP): recoverability test compares carrying amount with undiscounted expected future cash flows; if impaired, loss = carrying amount − fair value.

Impairment (IFRS): loss = carrying amount − recoverable amount, where recoverable amount is the higher of fair value less costs of disposal and value in use.

Goodwill impairment under US GAAP: compare reporting unit carrying amount (including goodwill) with fair value; loss is limited to the goodwill balance and is not reversed. IFRS permits reversal of impairment losses other than goodwill.

Debt securities classification (US GAAP): trading (fair value through net income), available-for-sale (fair value through OCI), held-to-maturity (amortized cost, only if positive intent and ability to hold to maturity).

Equity securities with readily determinable fair values are measured at fair value through net income; the measurement alternative (cost less impairment plus upward/downward adjustments for observable price changes) applies when fair value is not readily determinable.

Amortized cost of a bond = face amount ± unamortized premium or discount; premium/discount amortization uses the effective interest method.

Effective interest method: interest income = beginning carrying amount × market (effective) rate; premium amortization = interest income − stated coupon cash; discount amortization = stated cash − interest income.

IFRS 9 classification: amortized cost if business model is hold-to-collect and cash flows are solely payments of principal and interest (SPPI); FVOCI if hold-to-collect-and-sell with SPPI; otherwise FVTPL.

Equity method applies when an investor has significant influence (generally 20%–50% ownership): investment initially at cost, then adjusted for share of investee income and dividends.

Fair value option: irrevocable election at initial recognition to measure a financial instrument at fair value through profit or loss, reducing accounting mismatch.

Held-to-maturity investments are subject to expected credit loss measurement; AFS debt securities use an allowance for credit losses with non-credit changes recognized in OCI.

Derivatives are recognized at fair value; hedge accounting under US GAAP (ASC 815) and IFRS 9 aligns gains/losses with the hedged item.

Bonds issued at a discount when the stated (coupon) rate is below the market rate; at a premium when the stated rate exceeds the market rate; at par when equal.

Carrying amount of a bond = face value + unamortized premium or − unamortized discount; interest expense = carrying amount × market rate.

Straight-line amortization = total discount or premium ÷ number of interest periods; permitted under US GAAP if not materially different from effective interest; IFRS requires effective interest.

Bond issue costs reduce the carrying amount of the bond and are amortized using the effective interest method.

Lease classification (US GAAP): finance lease if any of five criteria - ownership transfer, bargain purchase option, lease term ≥ 75% of economic life, present value of payments ≥ 90% of fair value, or specialized asset with no alternative use.

IFRS 16: lessees recognize a right-of-use asset and lease liability for nearly all leases; short-term leases (≤12 months) and low-value assets may be expensed.

Lease liability = present value of lease payments discounted at the rate implicit in the lease (or lessee's incremental borrowing rate); ROU asset = lease liability + initial direct costs + prepaid rent − lease incentives.

Current portion of long-term debt is reclassified to current liabilities unless the entity has the right to defer settlement for at least twelve months after the reporting date.

Contingent liabilities are recognized when a present obligation is probable and can be reliably measured; contingent assets are recognized only when virtually certain (IFRS) or realized (US GAAP).

Deferred tax assets and liabilities arise from temporary differences between the tax basis and the carrying amount of assets and liabilities, and from tax loss and credit carryforwards.

Deferred tax liability recognized for taxable temporary differences (e.g., accelerated tax depreciation); deferred tax asset for deductible temporary differences (e.g., warranty accruals, unearned revenue).

Measurement uses enacted or substantively enacted tax rates expected to apply when the temporary difference reverses; deferred taxes are not discounted.

Valuation allowance (US GAAP) or deferred tax asset recognition test (IFRS) reduces DTAs to the amount more likely than not (greater than 50%) to be realized.

Current tax expense = taxable income × current tax rate; total income tax expense = current tax expense + deferred tax expense − deferred tax benefit.

Permanent differences (e.g., municipal bond interest, fines and penalties) affect the effective tax rate but never create deferred taxes.

Deferred tax effects of items recognized in OCI or equity (e.g., revaluation surplus, pension remeasurement) are also recognized in OCI or equity, not net income.

Uncertain tax positions (US GAAP): recognize a benefit only if it is more likely than not to be sustained; measure at the largest amount more than 50% likely to be realized on ultimate settlement.

Intraperiod tax allocation: income tax expense or benefit is allocated among continuing operations, discontinued operations, OCI, and equity items.

Defined contribution plans: employer expense = contribution required for the period; no further obligation beyond contributions.

Defined benefit plans: projected benefit obligation (PBO) is the actuarial present value of benefits attributable to employee service, using future compensation assumptions (US GAAP).

Components of net periodic pension cost (US GAAP): service cost, interest cost, expected return on plan assets, amortization of prior service cost, and amortization of net actuarial gain or loss.

Funded status = fair value of plan assets − PBO; a net pension liability is recognized when PBO exceeds plan assets, a net asset when plan assets exceed PBO.

Pension gains and losses not yet amortized are recognized in OCI (net of tax) under US GAAP; IFRS recognizes actuarial gains and losses in OCI and does not recycle them to profit or loss.

Corridor approach (US GAAP): amortize the excess of the net gain or loss over 10% of the greater of PBO or plan assets, divided by average remaining service period.

Prior service cost arises from plan amendments and is amortized over the remaining service period of affected employees.

IFRS: net interest cost = discount rate × net defined benefit liability (asset) at the start of the period; service cost and net interest go to profit or loss.

Settlement or curtailment gains and losses are recognized when the obligation is reduced significantly or the plan is terminated.

Issuance of common stock: cash received is allocated between common stock (par) and additional paid-in capital (excess over par).

Treasury stock is recorded at cost (US GAAP) and reduces total equity; under the cost method, reissuance above cost credits APIC, below cost debits APIC (then retained earnings if APIC is exhausted).

Dividends: cash dividends reduce retained earnings on the declaration date and create a liability; stock dividends and stock splits do not change total equity.

Basic EPS = (net income − preferred dividends) ÷ weighted-average common shares outstanding; weighted-average shares are time-weighted for issuances and repurchases.

Diluted EPS uses the if-converted method for convertible securities and the treasury stock method for options and warrants; anti-dilutive potential shares are excluded.

Treasury stock method: incremental shares = (options exercised × exercise price) ÷ average market price, subtracted from options exercised; proceeds assumed used to repurchase shares.

Share-based compensation (US GAAP): measure equity-classified awards at fair value on the grant date and recognize over the requisite service period; no subsequent remeasurement.

Stock options are valued using an option-pricing model (e.g., Black-Scholes-Merton) using expected term, expected volatility, risk-free rate, dividend yield, and exercise price.

Stock appreciation rights and other liability-classified awards are remeasured at fair value each reporting date until settlement.

Operating activities (US GAAP): interest received and dividends received are operating inflows; interest paid and dividends paid are operating outflows. IFRS permits interest and dividends paid as financing and interest and dividends received as investing.

Investing activities: acquisition and disposal of long-term assets and investments; lending and collecting loans. Financing activities: issuing and repaying debt, issuing and repurchasing equity, and paying dividends.

Indirect method: start with net income, add back noncash expenses (depreciation, amortization, share-based compensation), adjust for gains/losses on disposals, and adjust for changes in working capital.

Increase in an operating asset (e.g., accounts receivable, inventory) is deducted; increase in an operating liability (e.g., accounts payable) is added.

Investing and financing cash flows are computed directly from cash transactions; noncash investing and financing transactions (e.g., asset acquired by assuming debt) are disclosed separately.

Free cash flow = operating cash flow − capital expenditures (sometimes also less dividends); cash flow adequacy ratios compare cash flows with obligations.

Liquidity ratios: current ratio = current assets ÷ current liabilities; quick ratio = (cash + marketable securities + receivables) ÷ current liabilities.

Solvency and profitability: debt-to-equity = total liabilities ÷ total equity; times interest earned = (net income + interest + taxes) ÷ interest; return on equity = net income ÷ average common equity.

DuPont analysis: ROE = net profit margin × total asset turnover × equity multiplier; each factor isolates profitability, efficiency, and leverage.