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>
Short team Note interest
- If the interest rate is not properly stated, it is usually necessary to impute the interest. However, for receivables and payables arising from transactions with customers or suppliers in the normal course of business, if the trade terms do not exceed one year, this is not necessary. In such cases, the note is recorded at its face value.
- Long term Note interest: The correct presentation of a note payable is to show the face amount, less a discount on the liability itself at the imputed interest rate.
- (DR) Asset (Service) 8,000 (CR) 10,000
- (DR) Discount on Notes Payable 2,000
Discounted non-interest-bearing note payable
- The explanation refers to the accounting treatment for a non-interest-bearing note payable issued when the fair value of services received is less than the face amount of the note payable. Specifically, the situation involves the following:
- The discount associated with the note payable, which lowers the actual value of the liability on the books, is amortized over the period, recognizing the expense as actual interest. This approach enhances the transparency of a company’s financial condition and performance by reflecting the economic reality of the note payable more accurately.
Example of Debt Covenants Ratio Definition
- Accounts receivable turnover : Sales(net) / Average accounts receivable (net)
- Asset turnover: Sales(net) / Average total assets
- Basic earnings per share: Income available to common shareholders / Weighted average common shares outstanding
- Cash conversion cycle: Days sales in accounts receivable + Days in inventory – Days of payable outstanding
- Current ratio: Current assets / Current liabilities
- Days in inventory: Ending inventory / (Cost of goods sold /365)
- Days of payables outstanding: Ending accounts payable / (Cost of good sole / 365)
- Days sales in accounts receivable: Ending accounts receivable (net) / (Sales (net) / 365)
- Debt-to-EBITDA ratio: Interest -bearing liabilities / EBITDA
- Debt to equity: Total liabilities / Total equity
- Dividend payout: Cash dividend / Net income
- Free cash flow: Operating cash flow – Total capital expenditures
- Equity multiplier: Total assets / Total equity
- Gross margin (Gross profit margin): Sales(net) – COGS / Sales(net)
- Inventory turnover : COGS / Average inventory
- Operating cash flow ratio: Cash flow from operations / Ending current liabilities
- Price earnings ratio: Price per share / Basic earnings per share
- Quick ratio: Cash and cash equivalents + Short-term marketable securities + Receivables(net) / Current liabilities
- Return on assets: Net income / Average total assets
- Return on equity: Net income / Average total equity
- Tangible net worth: Total stockholder’s equity – Intangible assets
- Times interest earned: Income before interest expense and taxes / Interest expense or Earnings before interest and taxed / interest expense
- Total debt ratio: Total liabilities / Total assets
