Analyzing Balance Sheets – Module 3 – FSA – CFA® Level I 2025

Download PDF Now: https://www.finquiz.com/cfa/level-1/summary/ 2025 Prep Packages for the CFA® Program exam offered by FinQuiz Pro (notes, summaries, question bank, mock exams, and formula sheet): Level I: https://www.finquiz.com/cfa/level-1/ Level II: https://www.finquiz.com/cfa/level-2/ Level III: https://www.finquiz.com/cfa/level-3/ 0:00 – 0:30 | Introduction: Why the Income Statement Matters An overview of the income statement as a gateway to understanding a company’s performance—essential knowledge for CFA Level 1 candidates and financial analysts. 0:30 – 1:25 | Revenue Recognition Fundamentals Learn how revenue is recognized when it’s both realized and earned. Understand key concepts like creating receivables versus recording unearned revenue (e.g., magazine subscriptions). 1:25 – 3:00 | The 5-Step Revenue Recognition Process A detailed breakdown of the converged IFRS and US GAAP standards for revenue recognition: 3:00 – 4:16 | Performance Obligations & Software Example Explore how revenue is recognized as performance obligations are met—with a practical example of a software bundle (software delivered immediately vs. future updates recognized over time). 4:16 – 5:03 | Contract Modifications & Revenue Adjustments Understand how changes in contracts affect revenue recognition. See a real-world example (Builder Co’s contract modification) that adjusts revenue based on new costs and progress toward completion. 5:03 – 6:04 | Expense Recognition & the Matching Principle Learn the definition of expenses per IASB standards and why the matching principle is critical—ensuring expenses are recorded in the same period as the revenue they help generate. 6:04 – 8:02 | Inventory Costing Methods Explained An overview of alternative inventory costing methods: • Specific Identification • FIFO (First-In, First-Out) • Weighted Average Cost • LIFO (Last-In, First-Out) 8:02 – 12:00 | Capitalization vs. Expensing: Financial Impact Examine the two approaches to handling costs—capitalizing them as assets (and later depreciating/amortizing) versus expensing immediately. Learn how each method impacts the balance sheet, cash flow, and profitability metrics. 12:00 – 12:50 | Interest Costs Capitalization Discover when interest on long‑term projects (like a factory loan) is capitalized and added to the asset’s cost, versus being expensed immediately if the project is for resale. 12:50 – 13:20 | US GAAP vs. IFRS: Interest Expense Treatment Compare how US GAAP and IFRS treat interest expenses differently (operating vs. financing cash outflows) and the resulting impact on cash flow comparisons. 13:20 – 13:50 | Adjusting the Interest Coverage Ratio Learn why it’s important to adjust the interest coverage ratio for both capitalized and expensed interest to accurately assess a company’s debt service capacity. 13:50 – 17:13 | R&D & Software Development Costs: Expensing vs. Capitalization Understand the special treatment for costs related to developing intangible assets like software. Learn the criteria under IFRS (and the stricter US GAAP approach) for capitalizing versus expensing research and development costs. 17:13 – 17:29 | Key Takeaway: Timing Effects on Profitability A brief summary explaining that whether a cost is capitalized or expensed does not change total net income over an asset’s life—the difference lies in the timing of expense recognition. 17:29 – 19:01 | Non-Recurring & Non-Operating Items Explore how discontinued operations, unusual or infrequent items are reported separately to provide clearer insights into a company’s ongoing financial performance. 19:01 – 21:19 | Changes in Accounting Policies, Estimates & Errors Learn about adjustments in financial reporting—covering policy changes (e.g., switching from FIFO to LIFO), revisions in estimates, corrections of errors, and the impact of consolidating financials after acquisitions. 21:19 – 22:35 | Earnings Per Share (EPS) Analysis Understand how to calculate basic EPS and why diluted EPS (which accounts for convertible securities, stock options, and warrants) is crucial for assessing a company’s profitability. 22:35 – 23:22 | Treasury Stock Method for Diluted EPS Discover the treasury stock method for adjusting EPS for stock options and warrants—explaining how proceeds from option exercises are used to repurchase shares and impact dilution. 23:22 – 25:10 | Common Size Analysis & Income Statement Ratios Learn how to use common size analysis (expressing each income statement line item as a percentage of sales) and key ratios (net profit margin, gross profit margin, operating profit margin) to evaluate and compare company performance. 25:10 – 25:52 | Conclusion & Key Takeaways for Income Statement Analysis A final wrap-up summarizing the core concepts—from revenue/expense recognition to EPS and ratio analysis—reinforcing how these tools help you understand a company’s financial journey and prepare for the CFA Level 1 exam.