CPA FAR Cash, Receivables, and Inventory — Flashcards

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.