What does functional currency mean on the CPA exam?
Functional currency. The currency of the main economic environment in which an entity operates, which is usually where it generates and spends cash. Choosing it decides whether differences hit income or other comprehensive income.
Defined against ASC 830-10-45-2.
Which CPA exam sections use functional currency?
Functional currency appears in the FAR section of the CPA exam.
Related terms
- other comprehensive income: Gains and losses that bypass net income and sit in equity until realized, such as unrealized gains on available-for-sale debt securities and foreign currency translation.
- effective portion: The part of a cash flow hedge's gain or loss that actually offsets the hedged risk.
- financial statements: The formal set an entity publishes: balance sheet, income statement, statement of cash flows, statement of changes in equity, and the notes.
- goodwill: An asset representing the future economic benefits of acquired assets not separately identified, measured as consideration less identifiable net assets.
- service organization: A third party whose processing affects a user entity's financial reporting, such as a payroll bureau or a claims processor.
- deferred tax liability: The deferred tax consequences of taxable temporary differences: income already in the books that the return has not taxed yet, or a deduction taken on the return ahead of the books.