Financial Statement Accounts

FAR — Financial Statement Accounts & Analysis Exam: CPA — FAR (Financial Accounting & Reporting) Last Updated: June 2026 --- ## Balance Sheet (Statement of Financial Position) ### Current Assets (in order of liquidity) 1. Cash and cash equivalents 2. Short-term investments (trading, AFS) 3. Accounts receivable (net of allowance) 4. Inventory 5. Prepaid expenses Cash equivalents: Original maturity of 3 months or less (T-bills, money market funds, commercial paper). ### Accounts Receivable and Allowance | Method | How It Works | |---|---| | Allowance method | Estimate bad debt in same period as revenue (GAAP required for material amounts) | | Direct write-off | Write off when confirmed uncollectible (only acceptable for immaterial amounts) | Allowance entries: `` Bad Debt Expense XXX Allowance for Doubtful Accounts XXX (recording estimate) Allowance for Doubtful Accounts XXX Accounts Receivable XXX (writing off specific account) Accounts Receivable XXX Allowance for Doubtful Accounts XXX (reinstating previously written off) Cash XXX Accounts Receivable XXX (collecting reinstated account) `` ### Inventory Cost flow assumptions: FIFO, LIFO, Weighted Average, Specific Identification. | Method | Rising Prices Effect | |---|---| | FIFO | Higher ending inventory, lower COGS, higher net income, higher taxes | | LIFO | Lower ending inventory, higher COGS, lower net income, lower taxes | | Weighted Average | Between FIFO and LIFO | Lower of Cost or Net Realizable Value (LCNRV) — required under GAAP: - NRV = estimated selling price − estimated costs of completion and disposal - Write-down recognized as loss in current period; no reversal permitted LIFO reserve = FIFO inventory − LIFO inventory (used to convert LIFO to FIFO for analysis) --- ## Long-Term Assets ### Property, Plant &…