Accounting

Goodwill Impairment Writing down intangible assets when acquisition premium declines in fair value.

Goodwill Impairment Test How goodwill impairment testing works: annual reviews compare book value to fair value, triggering charges if the acquired business declines.

Goodwill Impairment Testing The annual assessment of whether goodwill recorded in an acquisition has declined in value and requires a write-down.

Gross Profit vs Operating Income: Key Differences Gross profit vs operating income: what costs separate them on the income statement, and what each margin reveals about business efficiency.

Held-to-Maturity Securities Debt securities that a company intends and is able to hold until maturity, recorded at amortized cost.

Historical cost Historical cost is the original price paid for an asset, adjusted for depreciation or amortization. It is the default measurement basis for most assets under GAAP.

Horizontal vs Vertical Analysis of Financial Statements Horizontal analysis tracks line-item changes year-over-year; vertical analysis expresses items as percentages of a base. When to use each.

How Activity-Based Costing Differs from Traditional Overhead Allocation Activity-based costing assigns overhead to products via multiple cost drivers tied to actual activities, while traditional methods use a single plant-wide rate, often distorting product costs.

How Depreciation Affects All Three Financial Statements Depreciation flows across the income statement, balance sheet, and cash flow statement simultaneously, affecting profitability, asset value, and cash reporting differently.

How Depreciation Affects Cash Flow Why depreciation is added back in the operating section of the cash-flow statement despite being an income-statement expense.

How FOB Shipping Terms Affect Revenue Recognition FOB shipping terms determine when control of goods transfers to the buyer. FOB origin shifts control at shipment; FOB destination at delivery—governing when the seller records revenue.

How Other Comprehensive Income Links to the Balance Sheet Other comprehensive income flows from the P&L to accumulated OCI in the equity section of the balance sheet. Understand which items accumulate there.

How the Three Financial Statements Link Together The mechanical connections between income statement, balance sheet, and cash flow statement that tie all three statements into one coherent picture.

How to Calculate a Departmental Overhead Rate Step-by-step guide to calculating separate overhead rates by department versus plant-wide rates, with worked examples.

How to Calculate Free Cash Flow from Financial Statements How to calculate free cash flow from financial statements: operating cash flow minus capital expenditures, with adjustments for working capital and financing needs.

How to Choose an Allocation Base for Overhead Choosing an allocation base for overhead requires matching the cost driver to the indirect expense—prioritizing causal relationship, measurability, and cost-benefit to ensure accurate product costing.

How to Read a Balance Sheet A balance sheet shows what a company owns, owes, and is worth. Learn each section and how the accounting equation ties them together.

How Under-Applied Overhead Affects the Income Statement The accounting treatment of under-applied overhead and its impact on cost of goods sold and net income.

Hyperinflationary Economy Accounting IAS 29 rules for restating financial statements when a currency's purchasing power collapses, required for high-inflation jurisdictions.

IFRS 15 The International Financial Reporting Standard that establishes a five-step framework for recognizing revenue when customers obtain control of goods or services.

IFRS 15 vs ASC 606: Key Differences Explained Understand the key differences between IFRS 15 and ASC 606 revenue recognition standards, including scope divergence and presentation choices.

IFRS 16 vs ASC 842: Key Differences in Lease Accounting Key differences between IFRS 16 and ASC 842 lease accounting: classification, exemptions, and expense recognition timing.

IFRS-GAAP Convergence The ongoing effort by FASB and IASB to align US Generally Accepted Accounting Principles with International Financial Reporting Standards.

Impairment Testing The process of assessing whether an asset's recorded value has declined below its recoverable amount, requiring a write-down.

In-Process Research and Development Acquired in a Business Combination In-process research and development acquisition accounting recognizes acquired IPR&D as an indefinite-lived intangible asset at acquisition date rather than immediately expensed.

Income statement The income statement is the financial statement that shows a company's revenues, costs, and profits over a period. It directly answers the question: did the business make money?

Incremental Costs of Obtaining a Contract: Capitalization Rules Learn which incremental costs of obtaining a contract must be capitalized under ASC 340-40 and how to amortize them over the performance period.

Indirect Cost Rate for Government Contracts How to compute and apply an indirect cost rate (pools overhead and allocates to federal contracts using FAR-compliant bases, with true-up reconciliation).

Inherent Risk vs Control Risk in Auditing Inherent risk and control risk are two components of audit risk that determine how thoroughly an auditor must test. Learn how they differ and why both matter.

Installment Sales Method An accounting technique that recognizes gross profit proportionally across cash collection periods for long-term receivables.

Intangible Asset Amortization The systematic expensing of finite-life intangible assets over their useful life.

Intangible assets Intangible assets are non-physical assets with value to a company, such as patents, trademarks, software, and customer lists. They may be amortized or impaired based on useful life.

Intangible Assets Amortization How finite-lived intangible assets like patents and customer lists are amortized over useful life, versus indefinite-lived intangibles that are only tested for impairment.

Interim Financial Statements Unaudited financial statements issued for periods shorter than a full year—typically quarterly—using simplified recognition and measurement rules.

Internal Control Over Financial Reporting The management systems and auditor verifications that prevent material misstatement of financial statements, mandated under Sarbanes-Oxley.

International Accounting Standards Board The IASB is the independent standards-setter for IFRS, the accounting standards used in over 140 countries. It is the global equivalent of the US FASB.

International Auditing and Assurance Standards Board The body that issues International Standards on Auditing (ISAs) and related standards adopted by over 120 countries outside the United States.

International Financial Reporting Standards IFRS is the set of accounting standards used by companies in over 140 countries. It is similar to GAAP but emphasizes principles over detailed rules.

Inventory Goods held for sale or use in production, valued under cost-flow assumptions that directly affect reported profit and balance-sheet totals.

Inventory Valuation Impact on Financial Statements How inventory valuation methods (FIFO, LIFO, weighted average) affect cost of goods sold, gross profit, taxes, and balance sheet inventory values.

Inventory Write-Down and Reversal Inventory write-down and reversal rules differ sharply: US GAAP prohibits reversals of inventory impairments, while IFRS allows them if value recovers, affecting earnings quality.

Inventory Write-Down in Accounting How to account for inventory write-down to net realizable value and its impact on cost of goods sold and the balance sheet.

Inventory Write-Down: Balance Sheet Impact How the lower-of-cost-or-net-realizable-value rule forces an inventory write-down, reducing assets and hitting COGS simultaneously.

Joint Cost Allocation The accounting process of distributing shared production costs among multiple outputs when a single production process yields multiple products.

Joint Cost Allocation vs Byproduct Treatment The threshold between joint cost allocation and byproduct accounting: how relative sales value, net realizable value, and management intent determine treatment.

Key Audit Matters in the Auditor's Report Key audit matters are required sections in auditor's reports for public companies. Learn what they are, why auditors disclose them, and how they differ from emphasis-of-matter paragraphs.

Lease Liability The accounting obligation to make future lease payments under ASC 842, recognized on the balance sheet as a liability with a corresponding right-of-use asset.

Lease Modification Accounting Treatment Understand lease modification accounting treatment under ASC 842 and IFRS 16: when a modification is a new lease, remeasurement of ROU assets, and change-in-substance tests.

Lease Modification Accounting Under ASC 842 Learn when lease modifications trigger new contract accounting or remeasurement under ASC 842, with practical examples and journal entries.

License Revenue Recognition: Right to Use vs. Right to Access Under ASC 606 / IFRS 15, a right-to-use license is recognized upfront while a right-to-access license is spread over time. This distinction determines when SaaS, software, and media revenue is recorded.

LIFO LIFO (Last-In, First-Out) is an inventory accounting method where the most recently purchased inventory is assumed to be sold first. It is tax-advantaged in inflationary periods but not permitted under IFRS.

Long-Term Construction Contract Revenue Recognition How construction firms recognize revenue on multi-year projects: input-based and output-based methods compared, plus the completed-contract option.

Long-Term vs Short-Term Investments on the Balance Sheet The one-year rule determines whether investments appear as current or non-current assets on a balance sheet. Learn how firms classify and reclassify holdings.

Lower of Cost or Market The accounting rule requiring inventory and certain assets to be valued at whichever is lower—historical cost or current market value.

Management Discussion and Analysis The narrative MD&A section of regulatory filings where executives explain financial results, liquidity position, and forward-looking risks in their own words.

Management Representation Letter in an Audit: Purpose and Contents What a management representation letter is in an audit, why auditors require it, and what written representations cover.

Marketable Securities Balance Sheet Classification Learn how companies classify marketable securities as current or non-current assets on the balance sheet based on intent and ability to sell within twelve months.

Matching Principle The accounting rule that expenses must be recognized in the same period as the revenues they help generate.

Materiality in Auditing The quantitative and qualitative threshold auditors set to decide which misstatements require correction or disclosure.

Materiality Threshold The accounting standard for determining which errors, omissions, or uncertainties are large enough to influence a reader's financial decisions.