How to calculate cash to accrual adjustment for deferred revenue?
Deferred revenue (liability) will be increased when the company collects cash from customers related to revenue that cannot be recognized (i.e., unearned as performance obligations have not been satisfied). Deferred revenue will be decreased when the company recognizes revenues that was previously categorized as unearned revenue. On the exam, you could be asked for the […]More
The Benefits of Visual Learning for the CPA Exam
If you are planning to sit for the CPA exam, then you may have already read up on how there are four parts of the exam, including auditing and attestation, business environment and concepts, financial accounting and reporting, and regulation. What you may not know, however, is that there are actually ways to learn these […]More
How to interpret the breakeven point in units?
The formula for calculating breakeven point in units is to take total fixed costs and divide by contribution margin per unit. Contribution margin per unit is calculated as revenue per unit minus variable costs per unit. The output of this formula will tell the company exactly how many units they need to sell to cover […]More
What is target costing?
Target costing is a system in which a company plans in advance the price points, product costs, and margins that it would like to use to achieve a new product. This concept will use the selling price of the product in order to determine the production of the cost that is required to enter the […]More
What factors are considered when determining the sample size in attribute testing for internal controls?
Attribute sampling is used for internal controls and we focus on determining whether the control is operating effectively or not. Attribute sampling would focus on yes or no type attributes. There are a variety of things to consider when determining the sample size (amount of instances to test) in attribute sampling: Reliance on controls – […]More
Internal control to test for credit approval?
For the AUD section of the CPA exam, you should understand how the audit team would test whether customer orders were properly approved to purchase on credit. For testing internal controls, we would utilize attribute sampling, which uses yes or no type of attributes. So for this situation, we would look to say “Yes, the […]More
What is capital rationing?
Capital rationing is meant to illustrate that a company does not have unlimited capital, so they would perform analysis to determine what types of capital projects would provide the greatest benefit to the company. Every company will use different metrics to determine which projects to accept or reject based on their goals. As it relates […]More
Audit procedures to identify pending litigation?
The AUD section of the CPA exam will test your understanding of how the audit team would identify pending litigation. Pending litigation needs to be accrued for and/or disclosed if certain requirements are met. There are two main procedures the audit team would perform for every audit: 1) Inquire with Management – Performing inquiry with […]More