CPA FAR covers Cash (valuation/bank recs), Receivables (valuation/bad debts), and Inventory (costing/valuation) as key current assets under "Select Balance Sheet Accounts" (30-40% of the exam). Core topics include estimating uncollectible accounts, LIFO/FIFO/Weighted Average cost methods, and lower-of-cost-or-net-realizable-value (LCNRV). Cash and Cash Equivalents Components: Readily convertible items, including treasury bills, money market instruments, and coins/currency. Bank Reconciliation: Crucial for adjusting book vs. bank balances. Typical adjustments: Bank Side: Deposits in... Show more CPA FAR covers Cash (valuation/bank recs), Receivables (valuation/bad debts), and Inventory (costing/valuation) as key current assets under "Select Balance Sheet Accounts" (30-40% of the exam). Core topics include estimating uncollectible accounts, LIFO/FIFO/Weighted Average cost methods, and lower-of-cost-or-net-realizable-value (LCNRV). Cash and Cash Equivalents Components: Readily convertible items, including treasury bills, money market instruments, and coins/currency. Bank Reconciliation: Crucial for adjusting book vs. bank balances. Typical adjustments: Bank Side: Deposits in transit (+), Outstanding checks (-), Bank errors. Book Side: Bank service charges (-), NSF checks (-), Interest income (+). Restricted Cash: Not included in cash equivalents if not available for current operations. Accounts Receivable (AR) Valuation: Reported at Net Realizable Value (NRV)—the amount expected to be collected. Allowance Method (GAAP): Uses the allowance for doubtful accounts to estimate uncollectible amounts. Bad Debt Estimation: Percentage of Sales (Income Statement approach): Bad debt expense is computed directly. Aging of Receivables (Balance Sheet approach): Allowance balance is computed, requiring adjusting entry. Write-off vs. Recovery: Write-off: Debit Allowance, Credit AR (no net income impact). Recovery: Re-establish AR, record cash collection. Increases allowance and cash. Inventory Costing Methods (Cost Flow): FIFO (First-In, First-Out): Oldest costs to COGS; newest in Ending Inventory. LIFO (Last-In, First-Out): Newest costs to COGS; oldest in Ending Inventory (US GAAP only). Weighted Average: Cost is averaged for all units. Inventory Valuation: Reported at the lower of cost or net realizable value (LCNRV). Perpetual vs. Periodic: Perpetual records inventory costs continuously; periodic uses a physical count. Key Exam Calculations Ending Inventory: Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory. Net AR: Accounts Receivable - Allowance for Doubtful Accounts = Net Realizable Value. Cash Paid for Purchases: Purchases + Beginning Accounts Payable - Ending Accounts Payable = Cash Paid. Show less
CPA FAR covers Cash (valuation/bank recs), Receivables (valuation/bad debts), and Inventory (costing/valuation) as key current assets under "Select Balance Sheet Accounts" (30-40% of the exam).
Core topics include estimating uncollectible accounts, LIFO/FIFO/Weighted Average cost methods, and lower-of-cost-or-net-realizable-value (LCNRV).
Cash and Cash Equivalents Components: Readily convertible items, including treasury bills, money market instruments, and coins/currency. Bank Reconciliation: Crucial for adjusting book vs. bank balances. Typical adjustments: Bank Side: Deposits in transit (+), Outstanding checks (-), Bank errors. Book Side: Bank service charges (-), NSF checks (-), Interest income (+). Restricted Cash: Not included in cash equivalents if not available for current operations.
Accounts Receivable (AR) Valuation: Reported at Net Realizable Value (NRV)—the amount expected to be collected. Allowance Method (GAAP): Uses the allowance for doubtful accounts to estimate uncollectible amounts.
Bad Debt Estimation: Percentage of Sales (Income Statement approach): Bad debt expense is computed directly. Aging of Receivables (Balance Sheet approach): Allowance balance is computed, requiring adjusting entry.
Write-off vs. Recovery: Write-off: Debit Allowance, Credit AR (no net income impact). Recovery: Re-establish AR, record cash collection. Increases allowance and cash.
Inventory Costing Methods (Cost Flow): FIFO (First-In, First-Out): Oldest costs to COGS; newest in Ending Inventory. LIFO (Last-In, First-Out): Newest costs to COGS; oldest in Ending Inventory (US GAAP only). Weighted Average: Cost is averaged for all units. Inventory Valuation: Reported at the lower of cost or net realizable value (LCNRV). Perpetual vs. Periodic: Perpetual records inventory costs continuously; periodic uses a physical count.
Key Exam Calculations Ending Inventory: Beginning Inventory + Purchases - Cost of Goods Sold = Ending Inventory. Net AR: Accounts Receivable - Allowance for Doubtful Accounts = Net Realizable Value. Cash Paid for Purchases: Purchases + Beginning Accounts Payable - Ending Accounts Payable = Cash Paid.
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