CPA BAR key terms

Sales revenue minus all variable costs, expressed in total or per unit. It measures how much each sale contributes toward covering fixed costs and then generating operating profit.

The sales volume or revenue level at which total revenues equal total costs, producing zero profit. It is computed by dividing fixed costs by the unit or ratio contribution margin.

The excess of budgeted or actual sales over break-even sales, shown in dollars or as a percentage. It indicates how far sales can fall before the entity incurs a loss.

The degree to which a firm's cost structure relies on fixed rather than variable costs. High leverage magnifies the effect of sales changes on operating income.

A future cost that differs between decision alternatives. Sunk costs and costs identical across options are excluded because they cannot change the decision outcome.

The benefit forgone by choosing one alternative over the next best option. It is relevant to decisions even though it never appears as a recorded accounting transaction.

A cost already incurred that cannot be recovered or altered by any future decision. It is irrelevant to decision making and should be ignored in incremental analysis.

A decision technique comparing only the additional revenues and additional costs that differ between alternatives, rather than comparing total costs of each option.

The comprehensive set of interrelated budgets for a period, typically beginning with the sales budget and culminating in budgeted financial statements and a cash budget.

A budget adjusted to the actual level of activity achieved, used to compare actual revenues and costs against what they should have been at that volume.

A budget prepared for a single planned activity level and not adjusted afterward. Comparing it to actual results at a different volume mixes volume and price effects.

The process of decomposing differences between budgeted and actual results into identifiable causes, such as price and quantity components, to support management control and corrective action.

A predetermined per-unit cost for materials, labor, or overhead, established from engineering studies or historical data and used as the benchmark in variance analysis.

The internal price charged when one division of an entity supplies goods or services to another. It affects divisional performance measures and can be set at cost, market, or negotiated amounts.

A performance measure computed as operating income divided by invested assets. It combines margin and turnover but can discourage managers from accepting profitable investments that lower the division ratio.

Operating income minus a required charge on invested assets, calculated as assets times a minimum required rate of return. It rewards accepting projects earning above the required rate.

A promise in a contract with a customer to transfer a distinct good or service. Revenue is recognized when each obligation is satisfied by transferring control to the customer.

The amount of consideration an entity expects to be entitled to in exchange for transferring promised goods or services, adjusted for variable consideration, financing, and noncash consideration.

An entity's right to consideration in exchange for goods or services already transferred, where that right is conditioned on something other than the passage of time.

An obligation to transfer goods or services to a customer for which the entity has already received consideration, commonly called deferred revenue.

Recognizing revenue progressively as performance occurs when the customer receives and consumes benefits simultaneously, the asset created has no alternative use with collection rights, or progress can be measured reliably.

A method of recognizing revenue over time by measuring progress toward completion, such as costs incurred to date relative to total estimated costs, and applying that ratio to the transaction price.

The lessee's asset representing its right to use an underlying asset for the lease term, initially measured at the lease liability plus certain initial direct costs and prepayments.

The lessee's obligation to make lease payments, initially measured at the present value of payments not yet made, discounted using the rate implicit in the lease or the incremental borrowing rate.

A lease that transfers substantially all risks and rewards of ownership to the lessee, resulting in interest and amortization expense rather than a single straight-line lease expense.

A tax obligation expected in future periods arising from taxable temporary differences, such as taxable income recognized before book income, measured at enacted future tax rates.

A future tax benefit arising from deductible temporary differences or carryforwards, which reduces future taxable income when reversed.

A contra account reducing a deferred tax asset to the amount more likely than not to be realized, based on available evidence about future taxable income.

The excess of consideration transferred in a business combination over the fair value of identifiable net assets acquired, not amortized but tested at least annually for impairment.

The gain recognized when the fair value of identifiable net assets acquired exceeds the consideration transferred, after reassessing the measurement of all items in the combination.

The amount by which an asset's carrying amount exceeds its recoverable amount or fair value, written down and recognized in income when the loss is indicated.

The price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, ranked by observable input levels.

The governmental fund measurement basis recognizing revenues when measurable and available and expenditures when the related liability is normally paid from current resources.

Funds including the general, special revenue, capital projects, debt service, and permanent funds, which focus on near-term inflows and outflows of spendable resources.

Enterprise and internal service funds accounted for on a full accrual basis, measuring net position and reporting results similar to a commercial business.

Funds holding resources in a trustee or agency capacity for others, such as pension and investment trust funds, which cannot be used to support the government's own programs.

Statements presenting detailed information by fund, including balance sheets and statements of revenues, expenditures, and changes in fund balances for governmental funds.

Statements presenting the government as a whole on a full accrual basis: a statement of net position and a statement of activities, with business-type activities and governmental activities shown separately.

The residual of assets plus deferred outflows minus liabilities and deferred inflows in government-wide and proprietary statements, classified as net investment in capital assets, restricted, or unrestricted.

The difference between governmental fund assets plus deferred outflows and liabilities plus deferred inflows, classified as nonspendable, restricted, committed, assigned, or unassigned.

The criterion under modified accrual requiring revenue to be both measurable and collectible within the current period or soon enough afterward to pay current obligations.

A commitment of appropriated resources for a specific future expenditure, such as a purchase order, recorded in governmental funds to prevent overspending of the budget.

Legislative authorization to spend resources for specified purposes up to a stated amount during a budget period, forming the legal basis for governmental fund budgets.

A required supplementary schedule comparing original and final budgets with actual results on the budgetary basis, disclosing variances for the general fund and major special revenue funds.