FY13CE Accounting cheat sheet

Revenue recognition (ASC 606): identify the contract, identify performance obligations, determine transaction price, allocate price to obligations, recognize revenue when (or as) each obligation is satisfied.

Five-step revenue model allocates variable consideration using either the expected-value method or the most-likely-amount method, constrained so a significant revenue reversal is not probable.

Accrual basis records revenue when earned and expenses when incurred; cash basis records only on cash movement. Accrual is required under US GAAP.

Inventory costing: FIFO assigns oldest costs to COGS (rising prices yield lower COGS, higher ending inventory); LIFO assigns newest costs to COGS (higher COGS, lower taxes in inflation).

Lower of cost or net realizable value (LCNRV) applies to inventory under US GAAP; net realizable value = estimated selling price minus costs to complete and sell.

Straight-line depreciation = (cost - salvage value) / useful life. Double-declining balance = 2 / useful life x beginning book value (ignores salvage until final year).

Goodwill arises only in a business combination and equals purchase price minus fair value of identifiable net assets acquired; it is not amortized but tested annually for impairment.

The accounting equation Assets = Liabilities + Equity must hold after every transaction; each entry keeps debits equal to credits.

Contribution margin = Sales - Variable costs. Contribution margin ratio = Contribution margin / Sales.

Break-even units = Fixed costs / Unit contribution margin. Break-even sales dollars = Fixed costs / Contribution margin ratio.

Target profit in units = (Fixed costs + Target profit) / Unit contribution margin.

Margin of safety = Actual (or budgeted) sales - Break-even sales; expressed in dollars or as a percentage of actual sales.

Degree of operating leverage = Contribution margin / Net operating income. It measures the percentage change in net income for a 1% change in sales.

Absorption costing assigns fixed manufacturing overhead to product cost; variable costing expenses fixed overhead as a period cost. Difference in income = change in inventory units x fixed overhead rate per unit.

Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total allocation base (e.g., direct labor hours or machine hours).

Under job-order costing, overhead applied = Predetermined rate x Actual activity. Overapplied overhead occurs when applied exceeds actual overhead; underapplied when actual exceeds applied.

Relevant costs for decisions are future costs that differ between alternatives; sunk costs and allocated common fixed costs are irrelevant.

Audit risk model: Audit risk = Inherent risk x Control risk x Detection risk. Detection risk is controlled by the auditor through the nature, timing, and extent of procedures.

The three general standards require adequate training and proficiency, independence in mental attitude, and due professional care; the field work standards cover planning, internal control understanding, and sufficient appropriate evidence.

The four reporting standards require a statement of conformity with GAAP, consistency, informative disclosure, and an expression of opinion (or disclaimer).

Sufficiency relates to the quantity of evidence; appropriateness relates to relevance and reliability. External evidence is more reliable than internal evidence; original documents more reliable than copies.

Materiality is the magnitude of an omission or misstatement that would influence a reasonable user's judgment; performance materiality is set below overall materiality.

An unmodified (unqualified) opinion states the financial statements are presented fairly in all material respects; a qualified opinion is issued for a material but not pervasive departure.

A going-concern emphasis-of-matter paragraph is required when substantial doubt exists but the statements are still presented on a going-concern basis.

Confirmation of accounts receivable is presumed necessary unless the auditor documents why it is not; the presumption can be overcome if balances are immaterial or confirmations would be ineffective.

The auditor obtains a management representation letter dated as of the audit report date, covering all periods presented.

Gross income includes all income from whatever source derived unless specifically excluded; exclusions include gifts, inheritances, and tax-exempt municipal bond interest.

Capital gains and losses: short-term assets held one year or less are taxed at ordinary rates; long-term assets held more than one year receive preferential rates (0%, 15%, or 20%).

Capital losses offset capital gains; up to $3,000 of net capital loss ($1,500 married filing separately) may offset ordinary income, with the remainder carried forward.

The standard deduction reduces taxable income; itemized deductions (e.g., mortgage interest, state taxes subject to the SALT cap, charitable contributions) are claimed only if they exceed the standard deduction.

Taxable income = Gross income - Adjustments (above-the-line) - Standard or itemized deductions - Qualified business income deduction.

The child tax credit is a nonrefundable credit of up to $2,000 per qualifying child, with a refundable portion; phase-outs begin at modified AGI thresholds.

Depreciation under MACRS uses the half-year convention and 200% declining balance for 3-, 5-, 7-, and 10-year property; residential rental uses 27.5 years, nonresidential real property 39 years straight-line.

Section 179 expensing allows immediate deduction of qualifying property up to an annual limit, phased out when total purchases exceed a threshold.

Filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying surviving spouse.

A contract requires offer, acceptance, consideration, capacity, and legality. A counteroffer terminates the original offer; acceptance must be a mirror image of the offer.

The Statute of Frauds requires a writing for contracts involving land, promises to pay another's debt, marriage consideration, contracts not performable within one year, and sale of goods of $500 or more.

Agency relationships create fiduciary duties of loyalty, obedience, and care; apparent authority binds a principal based on third-party reasonable belief created by the principal.

Under the Uniform Commercial Code (UCC), sale-of-goods contracts are governed by Article 2; the perfect tender rule allows rejection of goods that fail in any respect to conform.

Negligence requires duty, breach, causation (actual and proximate), and damages. Contributory negligence bars recovery in some jurisdictions; comparative negligence reduces recovery proportionally.

The AICPA Code of Professional Conduct: independence in fact and appearance is required for attest services; integrity and objectivity apply to all services.

Circular 230 governs practice before the IRS; it prohibits giving written tax advice based on unreasonable positions and imposes best-practices standards.

Confidentiality under the AICPA Code prohibits disclosing client information without consent except when required by law, subpoena, or peer review.

The accounting cycle: transaction occurs, journal entry recorded, posted to ledger, unadjusted trial balance, adjusting entries, adjusted trial balance, financial statements, closing entries, post-closing trial balance.

Internal control framework (COSO) has five components: control environment, risk assessment, control activities, information and communication, and monitoring.

Segregation of duties separates custody of assets, authorization, and recordkeeping to reduce the risk of fraud and error.

A general journal records transactions chronologically; a general ledger summarizes by account; a subsidiary ledger supports a control account such as accounts receivable.

Batch processing accumulates transactions and processes them periodically; online real-time processing updates records immediately as transactions occur.

An audit trail (transaction log) records the source, date, amount, and user of each transaction, enabling reconstruction and detection of unauthorized activity.

Encryption protects data confidentiality in transit and at rest; hashing verifies integrity; digital signatures provide authentication and nonrepudiation.

Disaster recovery plans specify backup frequency, recovery point objective (RPO), and recovery time objective (RTO); off-site backups protect against site-wide loss.

XBRL tags financial data with standardized taxonomy elements to enable electronic comparison and regulatory filing.

Revenue recognition (ASC 606): identify the contract, identify performance obligations, determine transaction price, allocate price to obligations, recognize revenue when (or as) each obligation is satisfied.

Five-step revenue model allocates variable consideration using either the expected-value method or the most-likely-amount method, constrained so a significant revenue reversal is not probable.

Accrual basis records revenue when earned and expenses when incurred; cash basis records only on cash movement. Accrual is required under US GAAP.

Inventory costing: FIFO assigns oldest costs to COGS (rising prices yield lower COGS, higher ending inventory); LIFO assigns newest costs to COGS (higher COGS, lower taxes in inflation).

Lower of cost or net realizable value (LCNRV) applies to inventory under US GAAP; net realizable value = estimated selling price minus costs to complete and sell.

Straight-line depreciation = (cost - salvage value) / useful life. Double-declining balance = 2 / useful life x beginning book value (ignores salvage until final year).

Goodwill arises only in a business combination and equals purchase price minus fair value of identifiable net assets acquired; it is not amortized but tested annually for impairment.

The accounting equation Assets = Liabilities + Equity must hold after every transaction; each entry keeps debits equal to credits.

Contribution margin = Sales - Variable costs. Contribution margin ratio = Contribution margin / Sales.

Break-even units = Fixed costs / Unit contribution margin. Break-even sales dollars = Fixed costs / Contribution margin ratio.

Target profit in units = (Fixed costs + Target profit) / Unit contribution margin.

Margin of safety = Actual (or budgeted) sales - Break-even sales; expressed in dollars or as a percentage of actual sales.

Degree of operating leverage = Contribution margin / Net operating income. It measures the percentage change in net income for a 1% change in sales.

Absorption costing assigns fixed manufacturing overhead to product cost; variable costing expenses fixed overhead as a period cost. Difference in income = change in inventory units x fixed overhead rate per unit.

Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total allocation base (e.g., direct labor hours or machine hours).

Under job-order costing, overhead applied = Predetermined rate x Actual activity. Overapplied overhead occurs when applied exceeds actual overhead; underapplied when actual exceeds applied.

Relevant costs for decisions are future costs that differ between alternatives; sunk costs and allocated common fixed costs are irrelevant.

Audit risk model: Audit risk = Inherent risk x Control risk x Detection risk. Detection risk is controlled by the auditor through the nature, timing, and extent of procedures.

The three general standards require adequate training and proficiency, independence in mental attitude, and due professional care; the field work standards cover planning, internal control understanding, and sufficient appropriate evidence.

The four reporting standards require a statement of conformity with GAAP, consistency, informative disclosure, and an expression of opinion (or disclaimer).

Sufficiency relates to the quantity of evidence; appropriateness relates to relevance and reliability. External evidence is more reliable than internal evidence; original documents more reliable than copies.

Materiality is the magnitude of an omission or misstatement that would influence a reasonable user's judgment; performance materiality is set below overall materiality.

An unmodified (unqualified) opinion states the financial statements are presented fairly in all material respects; a qualified opinion is issued for a material but not pervasive departure.

A going-concern emphasis-of-matter paragraph is required when substantial doubt exists but the statements are still presented on a going-concern basis.

Confirmation of accounts receivable is presumed necessary unless the auditor documents why it is not; the presumption can be overcome if balances are immaterial or confirmations would be ineffective.

The auditor obtains a management representation letter dated as of the audit report date, covering all periods presented.

Gross income includes all income from whatever source derived unless specifically excluded; exclusions include gifts, inheritances, and tax-exempt municipal bond interest.

Capital gains and losses: short-term assets held one year or less are taxed at ordinary rates; long-term assets held more than one year receive preferential rates (0%, 15%, or 20%).

Capital losses offset capital gains; up to $3,000 of net capital loss ($1,500 married filing separately) may offset ordinary income, with the remainder carried forward.

The standard deduction reduces taxable income; itemized deductions (e.g., mortgage interest, state taxes subject to the SALT cap, charitable contributions) are claimed only if they exceed the standard deduction.

Taxable income = Gross income - Adjustments (above-the-line) - Standard or itemized deductions - Qualified business income deduction.

The child tax credit is a nonrefundable credit of up to $2,000 per qualifying child, with a refundable portion; phase-outs begin at modified AGI thresholds.

Depreciation under MACRS uses the half-year convention and 200% declining balance for 3-, 5-, 7-, and 10-year property; residential rental uses 27.5 years, nonresidential real property 39 years straight-line.

Section 179 expensing allows immediate deduction of qualifying property up to an annual limit, phased out when total purchases exceed a threshold.

Filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying surviving spouse.

A contract requires offer, acceptance, consideration, capacity, and legality. A counteroffer terminates the original offer; acceptance must be a mirror image of the offer.

The Statute of Frauds requires a writing for contracts involving land, promises to pay another's debt, marriage consideration, contracts not performable within one year, and sale of goods of $500 or more.

Agency relationships create fiduciary duties of loyalty, obedience, and care; apparent authority binds a principal based on third-party reasonable belief created by the principal.

Under the Uniform Commercial Code (UCC), sale-of-goods contracts are governed by Article 2; the perfect tender rule allows rejection of goods that fail in any respect to conform.

Negligence requires duty, breach, causation (actual and proximate), and damages. Contributory negligence bars recovery in some jurisdictions; comparative negligence reduces recovery proportionally.

The AICPA Code of Professional Conduct: independence in fact and appearance is required for attest services; integrity and objectivity apply to all services.

Circular 230 governs practice before the IRS; it prohibits giving written tax advice based on unreasonable positions and imposes best-practices standards.

Confidentiality under the AICPA Code prohibits disclosing client information without consent except when required by law, subpoena, or peer review.

The accounting cycle: transaction occurs, journal entry recorded, posted to ledger, unadjusted trial balance, adjusting entries, adjusted trial balance, financial statements, closing entries, post-closing trial balance.

Internal control framework (COSO) has five components: control environment, risk assessment, control activities, information and communication, and monitoring.

Segregation of duties separates custody of assets, authorization, and recordkeeping to reduce the risk of fraud and error.

A general journal records transactions chronologically; a general ledger summarizes by account; a subsidiary ledger supports a control account such as accounts receivable.

Batch processing accumulates transactions and processes them periodically; online real-time processing updates records immediately as transactions occur.

An audit trail (transaction log) records the source, date, amount, and user of each transaction, enabling reconstruction and detection of unauthorized activity.

Encryption protects data confidentiality in transit and at rest; hashing verifies integrity; digital signatures provide authentication and nonrepudiation.

Disaster recovery plans specify backup frequency, recovery point objective (RPO), and recovery time objective (RTO); off-site backups protect against site-wide loss.

XBRL tags financial data with standardized taxonomy elements to enable electronic comparison and regulatory filing.