CPA BAR flashcards
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31 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Contribution Margin Ratio
- Contribution margin divided by sales revenue. It measures the percentage of each sales dollar available to cover fixed costs and generate profit.
- Breakeven Point
- The sales level at which total revenues equal total costs and operating income is zero. In units it equals fixed costs divided by contribution margin per unit.
- Margin of Safety
- The excess of budgeted or actual sales over breakeven sales, expressed as a percentage of budgeted or actual sales. It indicates the cushion before losses occur.
- Degree of Operating Leverage
- Contribution margin divided by operating income. It estimates the percentage change in operating income for a given percentage change in sales.
- Relevant Cost
- A future cost that differs between alternatives. Sunk costs and costs that are identical across options are excluded from the decision analysis.
- Special Order Decision
- Accepting a one-time order when incremental revenue exceeds incremental costs, typically when idle capacity exists and no regular sales are displaced.
- Make or Buy Analysis
- Comparing the purchase price plus avoidable fixed costs against internal variable production cost per unit to decide whether to outsource a component.
- Net Present Value
- The present value of expected future cash flows minus the initial investment. A positive NPV indicates the project adds value at the required rate.
- Residual Income
- Operating income minus a required return applied to invested assets. It charges investment centers for the capital they employ, unlike return on investment alone.
- Five-Step Revenue Model
- Identify the contract, identify performance obligations, determine transaction price, allocate the price to obligations, and recognize revenue when each obligation is satisfied.
- Performance Obligation
- A promise to transfer a distinct good or service to a customer. Revenue is recognized when control of each distinct good or service transfers.
- Variable Consideration
- Contract consideration that may vary due to discounts, rebates, or penalties. It is estimated using expected value or most likely amount, subject to a constraint.
- Contract Asset
- An entity's right to consideration for goods or services transferred that is conditioned on something other than the passage of time, such as future performance.
- Operating Lease Accounting
- Lessee records a right-of-use asset and lease liability at present value of payments. A single lease cost is recognized on a straight-line basis over the term.
- Finance Lease Criteria
- A lease qualifies when ownership transfers, a bargain purchase option exists, the term is a major part of asset life, or the present value is substantially all fair value.
- Goodwill Impairment Test
- Goodwill is tested annually for impairment. A loss is recognized for the excess of a reporting unit's carrying amount over its fair value, capped at goodwill assigned.
- Lower of Cost or NRV
- Inventory measured at the lower of cost or net realizable value, where NRV equals estimated selling price less costs to complete and sell, applied under FIFO and average cost.
- Deferred Tax Liability
- A tax obligation arising from a temporary difference that will reverse in future periods as taxable income exceeds book income, such as accelerated tax depreciation.
- Valuation Allowance
- A contra deferred tax asset recognized when it is more likely than not that some or all of the deferred tax asset will not be realized.
- Uncertain Tax Position
- A tax benefit recognized only if more likely than not to be sustained, measured at the largest benefit more likely than not to be realized on examination.
- Stock Compensation Expense
- Equity awards are measured at grant-date fair value and recognized as expense over the vesting period, with forfeitures estimated or recognized as incurred.
- Modified Accrual Basis
- The basis used by governmental funds: revenues are recognized when measurable and available, and expenditures are recognized when the related liability is incurred.
- Governmental Fund Types
- General, special revenue, debt service, capital projects, and permanent funds. They use modified accrual and report only current financial resources.
- Proprietary Fund Types
- Enterprise and internal service funds. They use full accrual accounting and report capital assets, long-term debt, and depreciation like a commercial business.
- Fiduciary Funds
- Custodial, pension trust, investment trust, and private-purpose trust funds. They hold resources for others and are excluded from government-wide statements.
- Major Fund Determination
- A fund qualifies if it is at least 10% of its fund type and 5% of the combined governmental and enterprise total, or is designated by officials.
- Fund Balance Classifications
- Nonspendable, restricted, committed, assigned, and unassigned. The order reflects increasing flexibility, with committed requiring formal government action.
- Encumbrances
- Commitments for goods or services not yet received, recorded in governmental funds to reserve fund balance. Outstanding amounts are reported as committed or assigned.
- Modified Approach
- An accounting election allowing eligible infrastructure to be reported at cost without depreciation if the government maintains it at or above an established condition level.
- Government-Wide Statements
- Full accrual statements including the statement of net position and statement of activities, reporting all governmental and business-type activities in two columns.
- Available for Revenue Recognition
- Collected within the current period or soon enough thereafter to pay current liabilities, typically within 60 days of year-end for property taxes.