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Financial Accounting and Reporting/Blueprint/1.E

Special purpose frameworks

Area 1: Financial Reporting (30-40%)

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Topics

  • Cash and modified cash basis
  • Tax basis financial statements

Lessons

  • Special Purpose FrameworksFree

Study Frameworks

Special Purpose Framework Selection

Is the entity required to use a regulatory basis of accounting by a government agency?
Yes
Regulatory basis — follow prescribed rules of the regulatory agency
No
Does a contract or agreement specify the basis of accounting to be used?
Yes
Contractual basis — follow terms of the specific contract
No
Does the entity primarily need financial statements aligned with its tax return?
Yes
Tax basis (income tax basis) — recognize income and deductions per IRC rules
No
Does the entity want to track only cash inflows and outflows with some accrual modifications?
Yes
Modified cash basis — cash basis plus selected logical accruals (depreciation, debt)
No
Cash basis — recognize revenue when cash received, expenses when cash paid

Cash-to-Accrual Revenue Conversion

Accrual Revenue = Cash Collected + Ending AR − Beginning AR + Beginning Unearned Revenue − Ending Unearned Revenue

Converts cash basis revenue to accrual basis. Add receivables earned but not yet collected; remove cash received in advance that hasn't been earned

Cash-to-Accrual Expense Conversion

Accrual Expense = Cash Paid + Ending Prepaid − Beginning Prepaid + Beginning AP − Ending AP

Converts cash basis expense to accrual basis. Add expenses incurred but not yet paid; remove cash paid in advance for future benefit

Pension Expense (Defined Benefit)

Service Cost + Interest Cost − Expected Return on Plan Assets + Amortization of Prior Service Cost ± Amortization of Net Gain/Loss

Net Periodic Pension Cost (ASC 715)

Service Cost + Interest Cost − Expected Return on Plan Assets ± Amortization of Prior Service Cost ± Amortization of Net Gain/Loss

Service cost is in operating income; all other components reported below the line. Expected return reduces pension expense; actual vs. expected difference deferred in OCI.

SE-PICService cost, Expected return (subtract), Prior service cost amortization, Interest cost, Corridor amortization (gains/losses)

Components of defined benefit pension expense. Think: the SEPIC order of pension costs.

SIRAEService cost, Interest cost, Return on plan assets (subtract), Amortization of prior service cost, Excess gain/loss amortization (corridor)

The five components of net periodic pension cost under ASC 715. SIRAE walks through each element in order. Only service cost hits operating income; the rest go below the line.

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