USCPA (FAR) – (10) Special Purpose Frameworks

I would like to record about the key points of the US CPA exam content.

<Create and note the points based on mainly Becker’s workbook>

OCBOA (Other Comprehensive Basis of Accounting)

• OCBOA (Other Comprehensive Basis of Accounting) refers to accounting standards other than Generally Accepted Accounting Principles (GAAP). It includes industry-specific accounting standards, tax basis, cash basis, or modified cash basis that may be tailored to specific types of businesses or used internally by organizations.
• Financial statements prepared under OCBOA often provide different information than those prepared under GAAP. Therefore, the titles of these financial statements should clearly differentiate them from accrual basis financial statements. This differentiation helps users of the financial statements accurately understand the accounting standards used in their preparation and make informed decisions accordingly.
• OCBOA financial statements do report equity interests and should explain changes to equity accounts during the period.
• OCBOA financial statement disclosures should be similar to GAAP financial statement disclosures.
• OCBOA financial statements should include financial statements equivalent to the accrual basis balance sheet and income statement. A statement of cash flows is not required.
• Special purpose frameworks are non-GAAP presentations that include other bases of accounting, such as the cash basis and modified cash basis. The statement of cash receipts and disbursements is an example of a cash basis income statement.

From cash basis to accrual basis

• [Point] check plus or minus of expense amount first and then consider plus or minus of each increased or decreased amount from cash to accrual base.

the bad check

Under the accrual basis, the bad check would be reported as accounts receivable since it was not paid as of December 31. (DR) Account receivable / (CR) Cash

the timing of recording depreciation expense

• The depreciation of an asset begins when the asset is placed in service. This means the asset starts being depreciated once it is in the condition and location necessary for it to be capable of operating in the manner intended by management.

Year-end inventory balance

• When the terms of the sale were FOB Destination and the goods were delivered to the customer next fiscal year, this amount should be recorded as inventory balance.

what the account for freight-in on the PL statement

• The cost associated with “freight-in” relates to the transportation costs of purchased goods and is generally included in the Cost of Goods Sold (COGS). Therefore, it is typically recorded as part of COGS on the Profit and Loss Statement.

Bond balance under the interest method

• The interest method is a technique used to calculate the interest expense for bonds or loans. With this method, the market interest rate (effective interest rate) is applied to the book value of the debt at the beginning of the accounting period to calculate the interest expense for that period. The calculated interest expense is then compared to the interest actually paid during the period, and the difference is used to adjust the book value of the debt. This process continues until the debt is repaid, gradually bringing the book value of the debt closer to its face value.

Account on the P&L statement

• Gross profit = Sales revenue – Cost of goods sold
• Other revenue(expense): Rent revenue, interest revenue, interest payable(expense), income tax payable(expense) etc.

Comprehensive base of accounting

•  A basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution is not a comprehensive basis of accounting because such a requirement, in itself, would not have substantial support. According to SAS 62, a comprehensive basis of accounting other than GAAP would include:
• Cash basis and modified cash basis
• Tax basis
• Prescribed regulatory basis
• Other basis with substantial support (e.g., price level basis)