What I Studied This Week

Concept in 60 seconds: contribution margin and break-even Contribution margin is what each sale leaves over after variable costs, to cover fixed costs and then profit. Example: you sell a product for $50. Variable cost per unit is $30, so each unit contributes $20. Fixed costs are $40,000 a year. Break-even in units = $40,000 ÷ $20 = 2,000 units. Contribution margin ratio = $20 ÷ $50 = 40%. Break-even in sales = $40,000 ÷ 40% = $100,000. Want a $10,000 profit? Add it to fixed costs: ($40,000 + $10,000) ÷ $20 = 2,500 units. Same logic, every time: cover fixed costs first, then everything e…

Concept in 60 seconds: tax basis Basis is your tax "cost" in an asset. Gain or loss on a sale is: Amount realised − adjusted basis Adjusted basis starts with what you paid, goes up for improvements, and goes down for depreciation you've claimed. Example: you buy a building for $100,000, add $20,000 of improvements and claim $30,000 of depreciation. Adjusted basis = $100,000 + $20,000 − $30,000 = $90,000. Sell it for $150,000 and the gain is $60,000. Basis questions show up everywhere in REG: gifts, inheritances, partnerships and S corporations all have their own basis rules. Get the start…

Concept in 60 seconds: revenue recognition (ASC 606) Think of a gym that sells a 12-month membership for $1,200, paid upfront in January. Has it earned $1,200 in January? No. It has promised a year of access, so it earns the revenue as it delivers: $100 a month. Until then, the unearned part sits on the balance sheet as a contract liability (deferred revenue). That's the core idea of the five-step model: 1. Identify the contract. 2. Identify the promises (performance obligations). 3. Work out the price. 4. Split the price across the promises. 5. Recognise revenue as each promise is fulfille…

Concept in 60 seconds: materiality A misstatement is material if it could reasonably be expected to change the decisions of people who use the financial statements. So a $5,000 error might not matter to a company with $50 million of revenue, but could matter a lot to one with $200,000. Materiality is about size and nature: a small amount can still be material if it involves fraud, turns a profit into a loss, or affects a loan covenant. Auditors set an overall materiality for the statements, then a lower performance materiality to leave a cushion for errors they don't find. Exam tip: materi…

Concept in 60 seconds: the CIA triad Almost every information security control protects one (or more) of three things: - Confidentiality: only the right people can see the data. Think encryption and access permissions. - Integrity: the data is accurate and hasn't been changed without authorisation. Think hashing, input controls and change logs. - Availability: systems and data are there when needed. Think backups, redundancy and disaster recovery plans. A ransomware attack hits availability (and often confidentiality too). Someone quietly editing payroll rates is an integrity problem. Email…

Concept in 60 seconds: debits and credits Every journal entry has at least one debit and one credit, and they're always equal. The trick is knowing which side makes each account go up: - Debits increase assets, expenses and dividends (or drawings). - Credits increase liabilities, equity and revenue. Example: you buy a laptop for $1,000 cash. Equipment (an asset) goes up, so debit Equipment $1,000. Cash (also an asset) goes down, so credit Cash $1,000. Memory aid: DEAD CLIC — Debits for Expenses, Assets, Dividends; Credits for Liabilities, Income, Capital. If the two sides of an entry don'…