Financial Accounting and Reporting (FAR) is one of the three Core sections every candidate must pass to earn the US Certified Public Accountant (CPA) license, and it tests how a newly licensed CPA prepares, reviews, and analyzes financial statements, account balances, and transactions under U.S. GAAP. The 2026 blueprint splits FAR into three weighted areas: Financial Reporting (30 to 40%), Select Balance Sheet Accounts (30 to 40%), and Select Transactions (25 to 35%), drawing on the FASB Accounting Standards Codification, FASB Concepts Statements, U.S. SEC rules (Regulation S-X and S-K), AICPA AU-C Section 800 for special purpose frameworks, and GASB standards for state and local governments. Roughly 80 to 100% of the section sits at the Application and Analysis skill levels, so FAR rewards candidates who can actually compute balances, post journal entries, and reconcile accounts rather than just recall a definition. The single most important habit it tests is identifying the reporting entity first: assume a for-profit business entity under U.S. GAAP unless the fact pattern names a "not-for-profit," "nongovernmental, not-for-profit," or a "local government," "state," "municipality" or "city" entity, because the measurement and presentation rules diverge sharply across those frameworks.
What This Cheat Sheet Covers
This topic spans 37 focused tables and 306 indexed concepts, 280 flashcards, 12 practice tests with 405 questions. Below is a complete table-by-table outline of this topic, spanning foundational concepts through advanced details.
A jump-to index of every table row in this cheat sheet.
An interactive map of every table and concept in this topic.
Table 1: Classified Balance Sheet Preparation and Error Correction
CPA FAR Area I-A.1, General-Purpose Financial Reporting (For-Profit): preparing a classified balance sheet (statement of financial position) from a trial balance, correcting identified errors, and agreeing amounts to supporting documentation under U.S. GAAP per the FASB ASC.
| Concept | Example | Description | |
|---|---|---|---|
Cash, receivables, inventory due in cycle → current; building, 5-year note → noncurrent | • Current = realized or settled within one year or the operating cycle, whichever is longer. Everything else is noncurrent • The split drives working capital and the current ratio | ||
Buy inventory → sell on account → collect cash; if that takes 15 months, use 15 months | • The time to convert cash back into cash • When it exceeds 12 months, it (not one year) sets the current boundary • Usually under a year, so one year normally governs | ||
Cash, then short-term investments, receivables, inventory, prepaid expenses | • Within current assets, the most liquid items are listed first • Noncurrent then follows: long-term investments, PP&E, intangibles, other assets | ||
$1,000,000 note, $100,000 principal due next year → $100,000 current, $900,000 noncurrent | The principal of long-term debt due within the next year (or cycle) is reclassified to current liabilities, even though the overall note is long-term. | ||
Note due in 6 months, refinanced long-term before issuance → noncurrent | Under ASC 470-10-45-14, a short-term obligation is excluded from current liabilities only with both intent AND ability to refinance long-term (an executed refinancing or a noncancelable financing agreement). Intent alone is not enough. | ||
Receivables $500,000 less allowance for credit losses $20,000 → net $480,000 in assets | • Allowance for credit losses and accumulated depreciation net against the related asset, reducing it • They are valuation accounts, never reported as liabilities | ||
Net a $10M derivative asset against a $7.5M derivative liability with the same party → $2.5M net | • Assets and liabilities may be netted only when a right of setoff exists (amounts determinable, legally enforceable right, intent to set off). Otherwise show both gross • Not for ordinary trade receivables/payables | ||
Omitted 20X1 to 20X4 expense found in 20X5 → adjust beginning retained earnings, not 20X5 income | • A material error in prior statements is fixed by restatement: adjust the opening balance of retained earnings (and restate comparatives), not through current-period income • Contrast with a change in estimate, which is prospective |