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CPA REVIEW VOLUME 2



The CPA Exam

From CPA Review; Written by Steve Dowling on 2012-01-15
The CPA Exam

The Uniform Certified Public Accountant Examination (Uniform CPA Exam) is the examination administered to people who wish to become Certified Public Accountants in the United States. The Uniform CPA Exam is developed and maintained by the American Institute of Certified Public Accountants (AICPA), and is administered by the National Association of State Boards of Accountancy (NASBA).

The sections have been reorganized as follows:

Auditing and Attestation – This section covers knowledge of planning the engagement, internal controls, obtaining and documenting information, reviewing engagements and evaluating information, and preparing communications.
Financial Accounting and Reporting – This section covers knowledge of concepts and standards for financial statements, typical items in financial statements, specific types of transactions and events, accounting and reporting for governmental...(Read More)


Revenue Recognition - Cash Basis

From CPA Review; Written by Steve Dowling on 2012-01-30

When is cash basis, rather than accrual, preferable or required?

In the case of a company selling inventory, the accrual basis is used. However, the cash basis of revenue recognition is used under certain circumstances, namely, when revenue is recognized upon collection of the account. Note that a service business that does not deal in inventory (e.g., accountant, doctor, lawyer) has the option of either using the accrual basis or cash basis. The cash basis instead of the accrual basis must be used when one or more of the following exist:

o Inability to objectively determine selling price at the time of sale
o Inability to estimate expenses at the time of sale
o Risks as to collections from customers
o Uncertain collection period

How do I compute revenue under the installment method?

Revenue recognition under the installment method equals the cash collected times the gross...(Read More)


Revenue Recognition - Production

From CPA Review; Written by Steve Dowling on 2012-01-30

When can revenue be recognized upon completion of production?

Revenue is recognized prior to sale or exchange.

REQUIREMENTS are that:
There must be:
o A stable selling price
o Absence of material marketing costs to complete the final transfer.
o Interchangeability in units This approach is used:
o With agricultural products, byproducts, and precious metals when the aforementioned criteria are met.
o In accounting for construction contracts under the completed contract method.

When can I recognize revenue during production?
In the case of long-term production situations, revenue recognition is made when:
o An assured price for the completed item exists by contractual agreement, and a reliable measure of the degree of completion at various stages of the production process is possible.
EXAMPLE: The percentage of completion method used in accounting for long-term construction...(Read More)


Revenue Recognition - Realization

From CPA Review; Written by Steve Dowling on 2012-01-30

Revenue, which is associated with a gross increase in assets or a decrease in liabilities, may be recognized under different methods depending on the circumstances. (Special revenue recognition guidelines exist for franchisors and in sales involving a right of return. A product financing arrangement may also exist.) One method of recognition is realization.

When is revenue normally realized?

Revenue is recognized when goods are sold or services are performed. It results in an increase in net assets. This method is used almost all of the time. At realization, the earnings process is complete. Further, realization is consistent with the accrual basis, meaning that revenue is recognized when earned rather than when received. Realization should be used when:
o The selling price is determinable
o Future costs can be estimated
o An exchange has taken place that can be objectively...(Read More)


Discontinued Operations

From CPA Review; Written by Steve Dowling on 2012-01-30

How is a discontinued operation defined?

A discontinued operation is an operation that has been discontinued during the year or will be discontinued shortly after year-end. A discontinued operation may be a business segment that has been sold, abandoned, or spun off.

The two components of discontinued operations are:
1. Income/loss from operations
2. Loss/gain on disposal of division

---An example of discontinued operation is:---

ABC Company produces and sells consumer products. It has a number of product groups with different product lines and brands. For this company, a product group is the lowest level at which the operations and cash flows can be distinguished, operationally and for financial reporting purposes, from rest of the company. ABC has suffered losses related to specific brands in its beauty product group. It opted to get out of this group. ABC commits to...(Read More)





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