Free CMA Part 1 Exam Flashcards

A financial statement showing a company's assets, liabilities, and equity at a specific point in time. Assets must equal liabilities plus equity (the accounting equation). Used to assess financial position and liquidity.

A financial statement showing revenues, expenses, and net income over a period of time. Reports operating and non-operating items separately. Key metrics include gross profit, operating income, and net income.

Reports cash inflows and outflows from operating, investing, and financing activities. Operating can use direct or indirect method. Reconciles beginning and ending cash balances. Critical for assessing liquidity.

Revenue recognized when earned, expenses when incurred, regardless of cash timing. Required by GAAP for external reporting. Creates timing differences between income and cash flow. Matches revenues with related expenses.

Five-step model: identify contract, identify performance obligations, determine transaction price, allocate price to obligations, recognize revenue when satisfied. Revenue recognized when control transfers to customer.

Current assets are expected to be converted to cash within one year (cash, receivables, inventory). Non-current assets provide benefits beyond one year (property, equipment, intangibles). Classification affects liquidity ratios.

Straight-line allocates cost evenly over useful life. Declining balance is accelerated. Units-of-production based on usage. Choice affects net income and asset values. MACRS required for tax purposes.

FIFO (first-in, first-out): oldest costs to COGS. LIFO (last-in, first-out): newest costs to COGS. Weighted average: blends costs. Choice impacts COGS, net income, and ending inventory values.

Comprehensive financial plan including operating and financial budgets. Operating: sales, production, purchases, labor. Financial: capital, cash, pro forma statements. Starting point is usually the sales budget.

Static budget is fixed at one activity level. Flexible budget adjusts for actual activity level, separating volume variances from efficiency variances. Flexible budgets provide more meaningful performance analysis.

Foundation of the master budget. Projects unit sales and revenue by product, region, and period. Based on sales forecasts, market analysis, and historical trends. Drives production, purchasing, and staffing plans.

Determines units to produce based on: budgeted sales + desired ending inventory - beginning inventory. Drives direct materials, direct labor, and manufacturing overhead budgets. Must balance demand with capacity.

Projects cash inflows and outflows to ensure adequate liquidity. Components: beginning cash, collections, disbursements, minimum balance required, financing needed. Critical for avoiding cash shortfalls.

Process of evaluating long-term investment decisions. Methods include NPV, IRR, payback period, and profitability index. Considers time value of money, risk, and strategic fit. Large commitments with long-term impact.

Sum of discounted future cash flows minus initial investment. Positive NPV creates shareholder value. Uses required rate of return as discount rate. Preferred method—considers timing, risk, and all cash flows.

Discount rate that makes NPV equal to zero. Accept if IRR exceeds required return. Limitation: assumes reinvestment at IRR rate. May give conflicting rankings with NPV for mutually exclusive projects.

Continuously updated budget that adds new periods as old ones expire. Maintains constant planning horizon (e.g., always 12 months ahead). More current than annual static budgets. Requires ongoing effort.

Costs that change in total proportionally with activity level. Examples: direct materials, direct labor, sales commissions. Fixed per unit. Important for contribution margin analysis and break-even calculations.

Costs that remain constant in total regardless of activity level within relevant range. Examples: rent, insurance, salaries. Variable per unit. Must be covered before earning profit. Committed vs discretionary.

Costs with both fixed and variable components. Example: utility bills with base charge plus usage. High-low method or regression analysis used to separate components. Total = Fixed + (Variable rate × Activity).

Revenue minus variable costs. Amount available to cover fixed costs and generate profit. Can be calculated per unit or as ratio. Unit CM = Price - Variable cost per unit. CM Ratio = CM / Revenue.

Sales level where total revenue equals total costs (zero profit). In units: Fixed costs / CM per unit. In dollars: Fixed costs / CM ratio. Critical for understanding risk and planning profit targets.

Accumulates costs by individual job or batch. Used for custom products or services. Tracks direct materials, direct labor, and applied overhead per job. Work in process account for each job.

Accumulates costs by department or process for homogeneous products. Uses equivalent units for partially completed work. Methods: weighted average (combines periods) or FIFO (separates periods).

Assigns overhead based on activities that drive costs. Multiple cost pools and drivers vs single plantwide rate. More accurate product costs. Identifies non-value-added activities. Higher implementation cost.

Uses predetermined costs for materials, labor, and overhead. Enables variance analysis comparing actual to standard. Helps control costs and evaluate performance. Standards should be attainable but challenging.

Price variance: (Actual price - Standard price) × Actual quantity purchased. Quantity variance: (Actual quantity used - Standard quantity allowed) × Standard price. Favorable if actual less than standard.

Rate variance: (Actual rate - Standard rate) × Actual hours worked. Efficiency variance: (Actual hours - Standard hours allowed) × Standard rate. Favorable variances reduce costs; unfavorable increase costs.

Variable OH: spending and efficiency variances. Fixed OH: spending and volume variances. Volume variance due to operating at different activity than budgeted. Applied overhead = Predetermined rate × Actual base.

Future costs that differ between alternatives. Include incremental, avoidable, and opportunity costs. Exclude sunk costs (past, unavoidable). Used in special decisions: make/buy, special orders, segment discontinuation.

Committee of Sponsoring Organizations framework. Five components: control environment, risk assessment, control activities, information/communication, monitoring. Three objectives: operations, reporting, compliance.

Foundation of internal control system. Includes tone at top, organizational structure, ethics, competence, and accountability. Management's commitment to integrity sets the standard for the entire organization.

Separating authorization, custody, and recordkeeping functions. No single person controls all aspects of a transaction. Key control to prevent and detect fraud and errors. Example: person who approves purchases shouldn't receive goods.

Preventive controls stop errors before they occur (approvals, access restrictions). Detective controls identify errors after they occur (reconciliations, audits, variance analysis). Both needed for effective control system.

Process of identifying and analyzing risks to achieving objectives. Consider likelihood and impact. Internal and external risks. Basis for designing appropriate control activities. Updated as conditions change.

Controls over technology infrastructure: access security, change management, operations, backup/recovery. Support application controls. Weakness here affects all systems using that infrastructure.

Three conditions enabling fraud: pressure (motivation), opportunity (weak controls), and rationalization (justification). Reduce fraud risk by addressing all three. Strong internal controls reduce opportunity.

GAAP (US) is rules-based; IFRS (international) is principles-based. Key differences: inventory (LIFO allowed under GAAP), development costs, revenue recognition details. SEC accepts IFRS for foreign registrants.

Most leases recorded on balance sheet. Operating lease: right-of-use asset and liability recognized. Finance lease: similar to prior capital lease treatment. Short-term leases (under 12 months) may use practical expedient.

Excess of purchase price over fair value of identifiable net assets in acquisition. Not amortized but tested annually for impairment. Impairment when carrying value exceeds fair value. Cannot be internally generated.

Basic EPS: Net income available to common / Weighted average shares. Diluted EPS includes effect of stock options, convertibles. Required on income statement for public companies. Key metric for investors.

Public companies must report financial information by operating segments. Helps users understand different business lines. Reportable if meets 10% test for revenue, assets, or profit/loss.

Events occurring after balance sheet date but before financial statements issued. Recognized events: adjust financial statements. Non-recognized events: disclose only. Evaluate through date statements available for issuance.

Integrated software system managing core business processes: finance, HR, manufacturing, supply chain. Single database ensures data consistency. Major vendors: SAP, Oracle, Microsoft. Significant implementation effort.

Using data to derive insights and support decisions. Descriptive (what happened), diagnostic (why), predictive (what might happen), prescriptive (what should we do). Essential for modern management accountants.

Quantifiable metrics measuring progress toward objectives. Should be SMART: specific, measurable, achievable, relevant, time-bound. Financial and non-financial. Leading (predictive) and lagging (historical) indicators.

Strategic management framework with four perspectives: financial, customer, internal processes, learning/growth. Links strategic objectives to measures and initiatives. Balances short and long-term, leading and lagging indicators.

Statistical technique relating dependent variable to independent variables. Simple regression: one predictor. Multiple regression: several predictors. R-squared indicates explanatory power. Used for cost estimation and forecasting.

Presenting data graphically to communicate insights effectively. Charts, graphs, dashboards. Tools: Excel, Tableau, Power BI. Choose appropriate visualization for data type and message. Avoid misleading representations.

Technologies and practices for collecting, integrating, and analyzing business data. Includes data warehousing, OLAP, reporting, and dashboards. Supports data-driven decision making across the organization.