Financial Accounting & Reporting curriculum

Information is relevant when it is capable of making a difference to a user's assessment, and it faithfully represents what it claims to when it is free from bias and leaves out nothing material. You need both: information can be verifiable and timely and still not be relevant to the decision at hand.

Comparability means differences between reports come from real differences in the business, not from choosing different accounting methods. Verifiability, timeliness and understandability round out the list, and timeliness can force a trade: a prompt estimate may serve you better than precise figures that arrive too late to matter.

An asset is something the entity owns that has value, a liability is an amount it owes, including a promise to deliver goods or services later, and equity is what would be left for owners if every asset were sold and every liability paid. Revenue is reserved for inflows from the entity's ongoing major or central operations.

To recognize an item is to show it in words and numbers with its amount counted in the totals of a statement. Disclosing the same amount only in a note is not a substitute for recognizing it, which is why the framework treats when an item enters the statements and how its amount is measured as questions of their own.

Under accrual accounting you record revenue when it is earned and expenses when they are incurred, whether or not cash has changed hands. Buying, producing and selling often do not line up with payments, so accrual figures show a period's cost of operations and the entity's position in a way that a record of cash receipts alone cannot.

Standards are written on the assumption that an entity will keep operating, and going concern describes the entity as a whole, not the value of any one asset. When conditions raise substantial doubt about whether the entity can continue, it may need to disclose those conditions and related information.

An item is material if there is a substantial likelihood that a reasonable person would consider it important. A percentage rule of thumb can start the analysis but never settles it: a small misstatement can still be material if it turns a loss into income, hides a missed earnings expectation or is an intentional effort to manage earnings.

The SEC recognizes FASB standards as “generally accepted” for the federal securities laws, while keeping its own authority to set accounting rules for companies that file with it. FASB's conceptual framework is not authoritative: it guides the board as it writes standards, and a standard can depart from it, so when the two differ you follow the standard.

Assets are listed by how quickly they will turn into cash, and current assets are those expected to be converted within a year, such as inventory. Liabilities are listed by due date, with current ones payable within the year. Because a balance sheet captures a single date, it shows none of the flows during the period.

Starting from gross sales, you subtract returns and allowances to reach net revenue, then cost of sales to reach gross profit, then operating expenses, including depreciation, to reach income from operations. Interest income and expense come after that subtotal, followed by income tax, leaving net income as the bottom line.

Unrealized changes in value on debt securities classified as available for sale, foreign currency translation adjustments, certain pension gains, losses and prior service costs, and some cash flow hedge results go to other comprehensive income. They build up in equity and move into earnings later, for example translation amounts when the foreign operation is disposed of.

Equity is what owners invested in the company's stock plus or minus its earnings or losses since inception, less what it has distributed. The statement of shareholders' equity rolls each piece forward, so you can see stock issued, net income added, dividends declared and treasury stock bought or sold between two balance sheet dates.

Operating cash flow comes from running the business. Investing covers buying and selling long-term assets and investment securities, and financing covers raising money by issuing stock or bonds or by borrowing, and paying it back. So selling investments from a portfolio brings in investing cash, while paying back a bank loan is a financing outflow.

You start from net income, take out items that involved no cash, such as by adding back depreciation, and then adjust for changes in the other operating assets and liabilities. The result differs from net income because profit and cash are related but not the same: a profit does not tell you whether the business generated cash.

The notes disclose the accounting policies most important to a company's results, which often rest on management's most difficult or subjective judgments, along with detail on income taxes, pension plans and stock options. No single statement tells the whole story, and the notes are where you learn how the numbers were built.

The results of discontinued operations are reported on a separate line, net of applicable income taxes, below income from continuing operations. Net income is the sum of the two, so you can see what the continuing business earned before the discontinued part is added in.

Earnings per share is net income spread over the shares outstanding: what each share would receive if the company paid out all of the period's net income, which companies almost never do. It also feeds the price-to-earnings ratio, which divides a share's market price by its EPS.

Each account has a left side for debits and a right side for credits, and every transaction is recorded as a debit in one account and a credit in another. That makes the books self-balancing: after posting, the debit total has to match the credit total, and if it does not, there is an error to find. Paying rent, for instance, debits rent expense and credits cash.

A journal records each transaction shown on your supporting documents, and posting then carries those amounts into ledger accounts for income, expenses, assets, liabilities and net worth. After posting, the debit total has to match the credit total; if it does not, an error has crept in and has to be found and corrected.

Accruals record revenue earned or expense incurred before any cash moves. Deferrals handle cash that moves first: an expense paid in advance is charged against the later periods it applies to, and cash received before you deliver is a liability until you perform. Many accruals rest on estimates that get revised as you learn more.

At year-end you close the income and expense accounts, carrying the period's net income into retained earnings, while asset, liability and owners' equity accounts stay open from year to year. Dividends declared also reduce retained earnings, and the closed accounts start the new year at zero.

Errors come from math mistakes, misapplied accounting principles or overlooked facts that existed at the time. Some offset themselves, as when a wrong year-end inventory figure carries into the next year's opening balance, but a material prior-period error is corrected by restating the earlier reports, with its cumulative effect carried to opening retained earnings.

You identify the contract, identify its performance obligations, determine the transaction price, allocate that price to the obligations, and recognize revenue when or as each obligation is satisfied. The core idea is that revenue reflects the consideration you expect to be entitled to for transferring goods or services to customers.

Each promise in a contract to transfer a distinct good or service, or a series of distinct ones that are substantially the same and transfer in the same pattern, is a separate performance obligation. When a contract has several, the transaction price is allocated among them, so how you count obligations affects when revenue is recognized.

Control passes over time when the customer has control of the asset while you create or enhance it, receives and consumes the benefit as you perform, or when your work has no alternative use to you and you have a right to payment for work done to date. Otherwise revenue is recognized at a point in time. Progress over time is measured by outputs, or by inputs such as costs incurred.

Discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses and penalties all make consideration variable, as does an amount that depends on whether a future event happens. You may need to include them when determining the transaction price, which means estimating amounts you are not yet entitled to.

You report revenue gross, as the principal, if you control the specified good or service ahead of its transfer to the customer; otherwise you report net, as an agent. Indicators such as being primarily responsible for fulfillment and having discretion over price inform the judgment, but they are not a checklist.

If you recognize revenue before you can bill for it, the amount sits as an unbilled receivable. If the customer pays before you perform, the cash is held as deferred revenue, a liability for your obligation to deliver later, until you earn it. Timing between performance and billing decides which position you hold.

Your bank statement may differ from your books because of bank charges you have not recorded, deposits made after the statement date or checks that had not cleared. Reconciling each month confirms how much cash you actually have, makes sure your books include every bank charge, and surfaces errors on either side.

The allowance is set up when a receivable is originated or acquired and is deducted from it to show the net amount expected to be collected over the contractual term, estimated from past events, current conditions and reasonable forecasts. When a specific amount proves uncollectible, it is written off against the allowance, never straight to retained earnings.

FIFO assumes the first items bought are the first sold, so ending inventory carries the most recent costs; LIFO assumes the last items bought are sold first. When prices are rising, LIFO gives a larger cost of goods sold and a smaller ending inventory than FIFO, and when prices fall the effect runs the other way.

A lower-of-cost test compares what an item cost with a current measure of its value and carries the lower amount, so a fall in value is recognized in the period it happens rather than when the goods are sold. The test only works downward: a value that rises above cost is not recorded until the goods are sold.

Cost of goods sold is what you had available to sell, at cost, minus ending inventory, so a misstated ending inventory moves cost of goods sold the opposite way and profit the same way. That closing figure then opens the following year, where it pushes cost of goods sold and profit in the reverse direction, so over the two years the error offsets.

The cost of property, plant and equipment includes everything spent to bring it to the form and location for its intended use, such as transportation to the point of first use, handling and design work. Interest on money borrowed to build a building is capitalized too, if material, but never more than the interest actually incurred in the period.

Straight-line takes the same amount each year: cost minus salvage value, divided by the useful life. Declining-balance methods are accelerated, putting more expense in the early years, while a units-of-production method ties the charge to estimated output rather than years, so heavy use in one year means more depreciation that year.

An asset's carrying amount is not recoverable when it exceeds the sum of the undiscounted future cash flows the asset is expected to produce. A loss is measured only after that test fails, by writing the asset down to fair value, which becomes its new basis, and a later recovery in value cannot reverse that loss.

A finite-lived intangible is amortized over its useful life and reviewed for impairment, while an indefinite-lived one is not amortized but checked for impairment every year at a minimum. In an acquisition, an intangible is recognized apart from goodwill if it arises from contractual or legal rights or can be separated and sold, licensed or exchanged.

Goodwill is the excess of what an acquirer pays, plus any noncontrolling interest, over the fair value of the identifiable net assets, standing for benefits not separately recognized. It is not amortized but checked for impairment every year at a minimum, although a private company may elect to amortize it over ten years or less.

Current liabilities are obligations you expect to pay within the year: amounts owed to suppliers and employees, taxes owed, and obligations to deliver goods or services customers have already paid for. What makes a debt current is timing, so an obligation of the same kind that falls due more than a year away is long-term instead.

You accrue a loss contingency when a loss is probable and the amount can be reasonably estimated; probable here means likely to occur, a higher bar than more likely than not. If a loss is only reasonably possible, you disclose it instead, and a remote chance calls for neither. A possible gain is not recognized before it is realized.

A warranty you give on what you sell can leave you owing repairs or replacements later. You record that expected cost as a liability when a loss is probable and the amount can be reasonably estimated, the same test used for other loss contingencies, rather than waiting until claims are actually paid.

When market rates are below a bond's stated rate, buyers pay more than face value, a premium; when market rates are above it, the bond sells below face, at a discount. Either way the difference adjusts the bond's yield over its life, and issuance costs are deducted from the liability in the same way as a discount.

Each period's interest is the carrying value at the start of the period times the effective rate, and the gap between that and interest at the stated rate is the period's amortization of premium or discount. The aim is a constant rate on carrying value; straight-line amortization is acceptable only when the result is not materially different.

A liability leaves the books only when you pay it or are legally released from it. When debt is modified or exchanged, substantially different terms make it an extinguishment, with the gain or loss recognized immediately; otherwise the gain or loss is deferred and spread over the new borrowing as an adjustment to interest expense.

Most leases put a lease liability, together with a right-of-use asset, on your balance sheet, unless you elect to exempt leases of 12 months or less with no purchase option you are reasonably certain to exercise. A finance lease then shows interest on the liability plus amortization of the asset, while an operating lease shows a single lease cost, generally straight-line.

In a sales-type or direct financing lease, the lessor derecognizes the asset and records a net investment in the lease, a present value that includes the remaining lease payments and any guaranteed residual value, and assesses it for credit losses. In an operating lease, the asset stays on the lessor's balance sheet and is assessed for impairment.

You report a defined benefit plan's funded status, plan assets at fair value minus the benefit obligation, as an asset if overfunded or a liability if underfunded. Net periodic benefit cost goes to income, while certain gains, losses and prior service costs go to other comprehensive income first and move into earnings later.

A temporary difference arises when an item hits your books in one period and your tax return in another, creating a deferred tax asset for future deductions or a deferred tax liability for future taxable income, measured at the rate expected to apply then. Items that are never taxed or never deductible, once called permanent differences, create no deferred tax.

More likely than not means a greater than 50 percent chance. Realization depends on enough future taxable income of the right character, drawn from four possible sources such as reversing taxable temporary differences or tax-planning strategies, and evidence that can be objectively verified carries more weight than evidence that cannot.

When you issue common stock, the par or stated value goes to the stock account and any amount received above par goes to additional paid-in capital, called surplus on some reports. Costs of selling the stock are deducted from the proceeds rather than expensed, so they never reduce net income.

Shares a company issued and later bought back, without retiring or reselling them, are carried at cost and subtracted from total equity. When they are resold or retired, any difference from cost generally adjusts paid-in capital rather than appearing as a gain or loss on the income statement.

A cash dividend is recorded as a liability on the declaration date, reducing retained earnings. A property dividend is recorded at the asset's fair value, with a gain or loss as if the asset were sold, while a stock dividend moves an amount from retained earnings into permanent capital and pays out no assets at all.

Preferred shareholders usually get priority over common shareholders for dividends or for assets in a liquidation, so the terms of each preferred issue decide how much of the earnings or remaining assets reach common holders. Some issues have a stated maturity or can be redeemed by the holder, while perpetual ones have neither.

Paying employees in stock options or shares is still compensation: under the fair value method, the award's cost is recognized as expense over the requisite service period, with a matching credit to equity when the award is classified as equity. An award paid in amounts based on the stock price can instead create a liability.

Debt securities are trading, carried at fair value with changes in earnings; held-to-maturity, at amortized cost when you have the intent and ability to hold them; or available-for-sale, at fair value with unrealized changes in other comprehensive income. Most equity investments are measured at fair value with changes in net income.

Owning 20 to 50 percent of the voting stock is presumed to give significant influence unless shown otherwise. Under the equity method the investment starts at cost, rises or falls with your share of the investee's earnings or losses, and is reduced by the cash dividends you receive.

A parent consolidates a company in which it owns more than half of the voting stock, and it may also have to consolidate a variable interest entity, one whose equity at risk is too thin to fund it or whose equity holders lack the power, losses or returns that normally come with ownership. The part of a subsidiary's equity the parent does not own is the noncontrolling interest, reported separately.

Fair value is an exit price in an orderly transaction. Level 1 inputs are unadjusted quoted prices for identical items in active markets, Level 2 are other observable inputs, and Level 3 are unobservable inputs reflecting the assumptions market participants would use. A significant unobservable adjustment can push a measurement down to Level 3.

You change an accounting principle only when a new standard requires it or the new principle is preferable, and new standards generally call for retrospective application. A change in an estimate is handled differently: it is applied going forward, in the current and later periods, and earlier reports are not restated.

An event between the period end and the report's issuance is recognized, adjusting the statements, when it gives more evidence about conditions that existed at period end. If it reflects conditions that arose afterward, it is not recognized but may need disclosure. A later event that resolves a contingency existing at period end is an adjusting one.

SEC rules call for amounts of related-party transactions to be stated on the face of the balance sheet, income statement or cash flow statement, rather than left buried in totals. Where separate statements are presented, intercompany profits or losses from those transactions are disclosed too.

SEC rules let quarterly statements be condensed and unaudited, and footnotes that would repeat the latest annual report can be left out, on the assumption you read the two together. Interim statements must still reflect every adjustment needed for a fair statement, and any adjustment that is not normal and recurring must be described.

When a transaction is in a currency other than your functional currency, exchange-rate moves change the cash you will pay or receive, and that gain or loss goes into the period's income. Translating a foreign operation's statements into the reporting currency instead produces adjustments held in other comprehensive income until the operation is disposed of.

The acquirer measures identifiable assets, liabilities and any noncontrolling interest at acquisition-date fair value, and expenses acquisition-related costs such as legal and advisory fees. If the identifiable net assets exceed the price paid, the acquirer rechecks what it identified, then records any remaining excess as a gain.

Working capital is current assets minus current liabilities: what would be left if you paid debts due within a year out of assets expected to turn into cash within a year. Like other ratios built from statement figures, what counts as a healthy level varies by industry.

Inventory turnover divides cost of sales from the income statement by average inventory from the balance sheet. Because a balance sheet is a snapshot, you average this period's ending balance with the prior period's, which is also this period's beginning balance.

Debt-to-equity divides total liabilities by shareholders' equity, both taken from the balance sheet. A higher ratio means the company relies more on what it owes than on what its owners have invested, and what counts as high varies by industry.

Operating margin divides income from operations, before interest and income tax, by net revenues, and is usually shown as a percentage of each sales dollar. The price-to-earnings ratio is different: it divides a share's market price by its EPS, telling you how many times its earnings the stock is selling for.

Work out which lines a transaction touches before judging a ratio. Paying a current liability with cash lowers current assets and current liabilities by the same amount, so working capital does not change, while borrowing long-term to buy equipment raises total liabilities and with them debt-to-equity.

A cash flow statement shows the sources and amounts of cash provided for operating, investing and financing purposes, and the major purposes the cash was used for. Gross amounts carry that picture: in foreign issuers' cash flow reconciliations to U.S. GAAP, SEC staff list presenting items net rather than gross among the common deficiencies.

Some investing and financing activity moves no cash at all, such as a property dividend recorded at fair value against retained earnings. It never appears as a cash line, so it needs its own disclosure; in foreign issuers' cash flow reconciliations to U.S. GAAP, SEC staff list failing to identify noncash investing and financing activities as a common deficiency.

Most SEC filers present balance sheets for two year-ends and income and cash flow statements for three years, so the columns must be comparable. When a discontinued operation or a change in accounting principle arises after the annual report, a later registration statement may need the annual statements recast to give it retrospective effect.

GAAP is not the only basis for keeping books: a federal grant recipient on the cash basis, for example, records leave cost in the period the leave is taken and paid. Statements filed with the SEC are different: if they do not follow GAAP they are presumed misleading or inaccurate despite footnote disclosure, unless the Commission has provided otherwise.

The retail method converts the retail price of goods on hand into an estimate of cost by multiplying it by a cost complement: cost of beginning inventory plus purchases, over their retail prices. Markdowns in the denominator decide the result; in the federal tax rules' retail LCM version they are left out, giving a lower ratio that approximates lower of cost or market.

Dollar-value LIFO measures a pool in total base-year dollars instead of counting units of each item. In the federal tax rules, a new layer exists only when ending inventory at base-year cost exceeds beginning inventory at base-year cost, and that increment is repriced with a percentage relating current cost to base-year cost. Liquidations and increments count for the pool as a whole.

Inventory follows ownership, not location. Federal tax inventory rules put it in terms of title: a consignor keeps goods it has shipped out on consignment in its own inventory, while the consignee holding them, which never gets title, leaves them out. The same rule puts goods still in transit into the buyer's inventory once title has passed to the buyer.

Under federal tax rules, cost depletion divides a mineral property's basis by the units remaining to get a per-unit rate, then multiplies that rate by the units sold in the year. The unit is the one buyers customarily pay for, such as tons of ore or barrels of oil, so the charge follows product sold rather than the calendar.

Under the federal tax system's MACRS, an averaging convention sets how many months of depreciation the year an asset is placed in service, or disposed of, receives. Nonresidential and residential rental real property use midmonth. Other property uses midyear, unless too large a share of the year's depreciable bases was placed in service in the last three months, which triggers midquarter.

A sale needs control to pass to the buyer. If the seller keeps an obligation or a right to buy the asset back, the buyer cannot fully direct its use or take its benefits, even while holding it, so the deal is accounted for as a financing or a lease. Similarly, a bank selling foreclosed property may not transfer control while the original borrower can still redeem it.

A sale-leaseback only counts as a sale if control of the asset passes to the buyer under the revenue standard. If it does, the seller removes the asset, books any gain, and records a lease. If it fails, nothing is derecognized and no gain appears: the cash received is a financing, and a direct financing leaseback means control never left.

A lease change that is not treated as a separate contract leads the lessee to remeasure the lease liability. The remeasurement adjusts the right-of-use asset, with any excess going to profit or loss once that asset hits zero, and the discount rate is usually updated to reflect the remaining term and payments.

Variable payments that follow an index or rate go into the lease liability at the index or rate on the commencement date, and a later change in the index is not one of the events that requires remeasuring it. Other variable payments stay out of the liability, unless a resolved contingency turns them into lease payments, and are recognized when the obligation for them is incurred.

A lessee may elect, by class of asset, not to record a right-of-use asset and liability for a lease of one year or less with no purchase option it is reasonably certain to exercise. The trap is the term: it includes renewal periods you are reasonably certain to exercise or that the lessor controls, so a one-year lease with such renewals is not short-term.

Federal grant cost rules let an organization accrue a type of paid leave as employees earn it only when GAAP treats that leave as a liability at the moment it is earned. A grant recipient on the cash basis instead records leave cost in the period the leave is taken and paid, so the same vacation can land in different periods under the two bases.

Exit and restructuring costs are recorded only when GAAP's conditions for a liability are met, which can come well after the events leading to a restructuring begin. SEC staff expect material exit costs that affect a known trend or uncertainty to be discussed in MD&A before then, and once recorded, restructuring charges belong in income from continuing operations.

Since ASU 2022-02, new loan modifications are no longer identified as troubled debt restructurings. Banks instead report a modification to a borrower experiencing financial difficulty, and both parts must hold: the borrower is in difficulty, and the change takes the form of principal forgiveness, a rate cut, an other-than-insignificant payment delay or a term extension.

One period's income tax is divided among the parts of the income statement that produced it. When discontinued operations are reported, the tax charged to continuing operations is what total tax would have been had discontinued results been zero; whatever is left goes to discontinued operations, which are shown net of that tax.

An operating loss carryforward becomes a deferred tax asset, measured at the enacted rate expected to apply when it will be realized. A valuation allowance then cuts it to the amount more likely than not to be realized, judged on all evidence weighted by how objectively it can be verified, so a history of losses usually counts for more than a hopeful forecast.

Recognition comes first: a tax position counts only if it is more likely than not to be sustained on its technical merits, assuming the authority knows all the facts. Measurement is a separate step, so a position that passes can still be partly unrecognized, and the unrecognized amount is usually carried as a liability for unrecognized tax benefits.

When debt is sold with detachable warrants as one unit, the single price is split between the debt and the warrants by their relative fair values; federal tax rules state the split for such investment units. The debt's share is therefore less than the whole price paid, even though the buyer handed over one amount for the package.

A convertible bond carries a lower interest rate than an equivalent bond without the feature, because the holder also gets a claim on the stock's upside. Using that feature means giving up the debt before maturity, which is why a holder cannot classify convertible debt as held-to-maturity. On the issuer's side, SEC rules require the basis of conversion to be disclosed with the debt.

A debt security moved between categories is transferred at amortized cost, except into or out of trading, where fair value applies. Moving from held-to-maturity to available-for-sale puts the unrealized gain or loss into other comprehensive income; the reverse leaves it there to amortize. Selling held-to-maturity securities outside narrow exceptions taints the whole portfolio.

An available-for-sale debt security is impaired when fair value drops below amortized cost. If you intend or will likely have to sell, write it down through earnings. Otherwise split the drop: the credit part goes to an allowance, capped at the fair-value floor, and the rest goes to other comprehensive income.

In a highly effective cash flow hedge, the derivative's whole change in fair value goes to other comprehensive income instead of earnings; only a documented excluded component, such as an option's time value, reaches earnings on its own schedule. Hedge accounting continues only while its criteria keep being met, including the forecasted transaction staying probable.

An entity's functional currency is the currency of the primary economic environment in which it operates. That determination decides the rest: a deal in any other currency is a foreign currency transaction, while statements kept in a foreign office's functional currency are translated into the reporting currency, normally only at reporting dates.

A receivable or payable in a foreign currency produces transaction gains and losses in income as rates move. Translating a foreign office's statements from its functional currency uses the current rate method, and those adjustments go to other comprehensive income until the office is disposed of, when they become part of the gain or loss.

An acquirer often lacks full information at the acquisition date, so it records provisional fair values. As it learns more about conditions that existed on that date, it adjusts those amounts in the period identified, without restating prior periods. The window closes when the information arrives or proves unobtainable, and never runs past a year.

In an acquisition the noncontrolling interest is measured at acquisition-date fair value and counts toward goodwill along with the consideration paid. Afterward it is its own caption within equity, after the parent's stockholders' equity, and net income and comprehensive income are each split between the noncontrolling and controlling interests.

A government keeps its books in funds, each set up to account for a specific activity. Governmental funds include the general fund, special revenue, capital projects and debt service funds; proprietary funds include enterprise and internal service funds; fiduciary funds include pension, investment and private-purpose trust funds.

Governmental funds mostly report on the modified accrual basis: revenue when it becomes available and measurable, expenditures when the fund's liability is incurred. Proprietary funds use full accrual, like a business, recording revenue when earned. One government can use different bases in different funds.

An encumbrance reserves part of appropriated spending authority for a specific contract, purchase order or other item that the authority will later pay for. Federal accounting uses the word obligations for the same reservation, and the authority still unobligated is what program managers watch to avoid spending past what was appropriated.

A debt service fund, also called a sinking fund, holds cash and securities set aside to pay interest and principal on long-term debt. Census finance statistics treat revenue moved into such a fund as an intragovernmental transfer, counting it as neither revenue nor spending; the outlay shows up when the debt is redeemed, including from assets the fund built up.

A not-for-profit splits net assets into two classes: with donor restrictions and without. Donor restrictions limit use by time or purpose, or require a gift to be preserved. A board designation is not a donor restriction, so a board-designated endowment stays in net assets without donor restrictions, since the board can decide at any time to spend it.

A gift with a donor-imposed condition, a barrier that must be overcome before the recipient is entitled to it, is deferred until the condition is substantially met. An unconditional pledge is revenue now and a receivable reduced for amounts not expected to be collected, with multi-year promises carried at present value.

Volunteer time is not a noncash contribution of property. GAAP calls for recording donated services as revenue and expense only in certain circumstances, while the IRS keeps them out of Form 990's revenue and expense parts and allows them only as optional program information, so audited statements and the Form 990 can differ on the same help.

Expenses are sorted by function: program services that further the mission, management and general, and fundraising. Form 990's instructions add two guardrails: fundraising is never a program expense, even when soliciting gifts is one of the purposes, and an executive who directly supervises programs or fundraising has salary split across the columns.

A transfer of receivables is a sale only when the sale conditions are met; otherwise it is a secured borrowing and the receivables stay on the books. Recourse is not always fatal: a seller can record the sale plus a liability at the fair value of its recourse obligation, but recourse beyond standard representations keeps a loan participation from being a sale until it lapses.

Pledging assets such as securities as collateral does not remove them from the books; the borrowing appears as a liability alongside the pledged assets. Users still need to know what is encumbered, so SEC rules call for disclosing the assets mortgaged, pledged or otherwise subject to lien, their approximate amounts and the obligations they secure.

A note received in a sale at off-market terms is recorded at present value, using a market rate that reflects the buyer's credit and the financing terms. The gap between face and present value is a discount, accreted into interest income by the interest method so the yield stays level over the note's life.

Cash restricted as to withdrawal or usage is shown separately from other cash, and a note describes the restriction. Restrictions can include legally restricted compensating balances held against short-term borrowings, while time deposits and short-term certificates of deposit are generally not counted as legally restricted deposits.

Under the federal tax rules' avoided-cost method, capitalized interest is the interest that would have been avoided if spending on property being produced had repaid debt instead, whether or not the business would really have repaid it. Interest on traced debt counts first; spending beyond that is multiplied by a weighted average rate, interest on other debt over its average balance.

Internal-use software is built only for your own needs, with no substantive plan to market it; software meant for sale falls under different rules. For internal use, application development stage costs are capitalized and the rest expensed; entities that adopt a 2025 update instead start capitalizing once funding is committed and completion is probable.

Federal accounting guidance treats hosted software as the customer's own only if the customer has a contractual right to take possession during the hosting period without significant penalty, and could feasibly run it on its own hardware or with an unrelated host. Fail either test and the customer is buying a service rather than software.

Debt issuance costs are deferred and amortized over the terms of the debt, so the cost of raising the money is spread across its life as part of borrowing cost. Costs of a successful stock offering are handled differently: they reduce the proceeds recorded in paid-in capital and never pass through income.

A serial issue repays principal in slices on a series of dates rather than all at one maturity. SEC balance sheet rules therefore ask, for each debt issue, for the maturity date or, when it matures serially, a brief indication of the serial maturities, along with the interest rate, any contingency in payment and its priority.

Share-based compensation is recognized only for awards whose holders actually deliver the goods or render the service required. An award forfeited before vesting therefore ends up with no cost. Forfeiture risk belongs in that recognition pattern, not in the award's fair value, so it is kept out of the expected term used to value options.

When an award's terms change, the extra cost is measured as the fair value of the modified award minus the fair value of the original award measured immediately before the change. Only that excess counts as incremental compensation cost.

GAAP calls for certain footnote disclosures about current vulnerabilities due to concentrations, such as heavy reliance on one customer. MD&A adds the forward-looking side: known trends, demands, commitments and uncertainties reasonably likely to have a material effect on the company, including those tied to customers.

Level 3 fair values rest on unobservable inputs, a company's own assumptions about what market participants would use. In a 2008 letter, SEC staff suggested MD&A cover how much is measured at Level 3, material transfers into or out of it and why, the inputs no longer observable, and how sensitive the estimates are to significant inputs.

SEC rules require the amounts of related-party transactions on the face of the balance sheet, statement of comprehensive income or statement of cash flows, not just in a note, and receivables from related parties stand apart from trade customers. When separate statements of the registrant or a subsidiary are presented, intercompany profits or losses with related parties must be disclosed.

A classified balance sheet splits current from noncurrent items, and SEC rules list current assets in a set order: cash and cash items, marketable securities, receivables, and later inventories. Some specialized industries normally do not present a classified balance sheet, and summary information for them gives the nature and amount of the main asset and liability components instead.

Statements are prepared on a going-concern basis until liquidation becomes imminent. When an SEC filing includes an audit report with a going-concern modification, staff require prominent disclosure of the difficulties and a viable plan to keep the issuer going for at least 12 months after the balance sheet date; without one, liquidation-basis statements may be needed.