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GAAP Guidebook (2026) #360326

Course Overview

Credit

Amount

CPA

Course Author: Steven M. Bragg, CPA Field of Study (CPA): Accounting

Course Description

Course publication/revision date: This course was updated on 11/11/2025 (2026 ed.).

Generally Accepted Accounting Principles (GAAP) are used as the basis for financial reporting. The orig-inal GAAP documents span thousands of pages, and so are difficult to research. The GAAP Guide-book solves this problem by condensing GAAP into a single volume. This course describes the key ele-ments of each topic, how accounting information is disclosed, and where to look in the FASB Codification source documents for additional information. The text contains hundreds of practical examples that show how to apply GAAP to real-world situations, as well as sample journal entries and usage tips. In short, the GAAP Guidebook serves as a handy reference for accountants who need quick answers to difficult problems.

Table of Contents

Chapter 1 - Introduction1

What is GAAP?	1
How this Book is Organized	3
How to Use this Book	4
Accounting Principles	4

Chapter 2 - Presentation of Financial Statements8

Overview of the Presentation of Financial Statements	8
Presentation Disclosures	8
Liquidation Basis of Accounting	9
Liquidation Basis Disclosures	10
Going Concern Disclosures	10
Discontinued Operations	11
Discontinued Operations Disclosures	13

Chapter 3 - Balance Sheet16

Overview of the Balance Sheet	16
The Common Size Balance Sheet	20
The Comparative Balance Sheet	21
How to Construct the Balance Sheet	22
Offsetting	24
Treatment of Negative Cash	24
Balance Sheet Disclosures	25

Chapter 4 - Comprehensive Income28

Overview of Comprehensive Income	28
Comprehensive Income Disclosures	29

Chapter 5 - Income Statement35

Overview of the Income Statement	35
The Single-Step Income Statement	38
The Multi-Step Income Statement	38
The Condensed Income Statement	39
The Contribution Margin Income Statement	39
The Multi-Period Income Statement	40
How to Construct the Income Statement	41
Income Statement Disclosures	43

Chapter 6 - Statement of Cash Flows47

Overview of the Statement of Cash Flows	47
The Direct Method	48
The Indirect Method	50
How to Prepare the Statement of Cash Flows	51
Disclosures for the Statement of Cash Flows	53

Chapter 7 - Notes to Financial Statements56

Overview of Notes to Financial Statements

Chapter 8 - Accounting Changes and Error Corrections60

Changes in Accounting Principle	60
Changes in Accounting Estimate	61
Changes in Reporting Entity	61
Correction of an Error in Previously Issued Financial Statements	62
Corrections Related to Prior Interim Periods	62
The Materiality of an Error	62
Accounting Changes and Error Corrections Disclosures	62
Change in Accounting Principle	63
Change in Accounting Estimate	63
Change in Reporting Entity	63
Error Corrections	63
Historical Summaries	64

Chapter 9 - Changing Prices67

Overview of Changing Prices	67
Inventory and Fixed Assets	67
Specialized Assets	68
Recoverable Amounts	68
Income from Continuing Operations	68
Restatement of Current Cost Information	69
Translation Adjustments	69
Purchasing Power Gains and Losses	69
Restatement Steps	69
Changing Prices Disclosures	70
Five-Year Summary	70
Other Current Year Disclosures	71
Other Disclosures for Mineral Resources Assets	72

Chapter 10 - Earnings per Share74

Basic Earnings per Share	74
Diluted Earnings per Share	75
Treasury Stock and Reverse Treasury Stock Methods	79
Treasury Stock Method	79
Reverse Treasury Stock Method	80
Disclosure of Earnings per Share	80

Chapter 11 - Interim Reporting84

Overview of Interim Reporting	84
General Interim Reporting Rule	84
Variations from the Interim Reporting Rule	85
Changes in Accounting Principle in Interim Periods	86
Changes in Accounting Estimate in Interim Periods	87
Error Correction in Interim Periods	87
Adjustments to Prior Interim Periods	87
The Integral View	88
The Discrete View	89
Comparison of the Integral and Discrete Views	89
Disclosures for Interim Reporting	90

Chapter 12 - Risks and Uncertainties93

Overview of Risks and Uncertainties	93
Risks and Uncertainties Disclosures	94

Chapter 13 - Segment Reporting97

Overview of Segment Reporting	97
Segment Disclosure	99
Segment Disclosure	99
Products, Services, and Customer Disclosure	102
Geographic Area Disclosure	102

Chapter 14 - Receivables105

Notes Receivable	105
Acquisition, Development, and Construction Arrangements	107
Nonrefundable Fees and Other Costs	108
Loans and Debt Securities Acquired with Deteriorated Credit Quality	110
Classification of Government-Guaranteed Loans	112
Indicators for a Debtor in Financial Difficulties	112
Treatment of Credit Losses	112
Receivables Presentation	113
Receivables Disclosures	114

Chapter 15 - Investments – Debt and Equity Securities120

Overview of Investments – Debt and Equity Securities	120
Accounting for Investments	120
Credit Losses on Investments	121
Equity Securities without Readily Determinable Fair Values	123
Dividend and Interest Income	123
Investment Disclosures	123

Chapter 16 - Investments – Equity Method and Joint Ventures128

The Equity Method	128
Partnerships, Joint Ventures, and Limited Liability Entities	130
Investment Disclosures	131

Chapter 17 - Inventory133

Overview of Inventory	133
The Periodic Inventory System	135
The Perpetual Inventory System	136
Inventory Costing	137
The First In, First Out Method	137
The Last In, First Out Method	138
The Weighted Average Method	140
Standard Costing	141
The Retail Inventory Method	142
The Gross Profit Method	143
Overhead Allocation	144
The Lower of Cost or Market Rule	147
Work in Process Accounting	149
Accounting for Obsolete Inventory	150
Consignment Accounting	151
Goods in Transit	151
Inventory Disclosures	152

Chapter 18 - Other Assets and Deferred Costs154

Overview of Other Assets and Deferred Costs	154
Prepaid Expenses	154
Preproduction Costs for Long-Term Supply Arrangements	155
Capitalized Advertising Costs	155
Insurance Contracts that Do Not Transfer Insurance Risk	156
Other Assets and Deferred Costs Disclosures	157
Preproduction Costs for Long-Term Supply Arrangements	157
Capitalized Advertising Costs	158
Insurance Contracts that Do Not Transfer Insurance Risk	158

Chapter 19 - Intangibles – Goodwill and Other161

Goodwill	161
Goodwill Amortization	164
General Intangibles Other than Goodwill	165
Internal-Use Software	167
Website Development Costs	169
Crypto Assets	169
Intangibles Disclosures	169

Chapter 20 - Property, Plant, and Equipment174

Overview of Fixed Assets	174
Initial Fixed Asset Recognition	176
Fixed Assets Acquired through a Business Combination	176
Nonmonetary Exchanges	177
Depreciation and Amortization	180
Straight-Line Method	181
Sum-of-the-Years' Digits Method	182
Double-Declining Balance Method	183
Depletion Method	184
Units of Production Method	185
Land Depreciation	186
Land Improvement Depreciation	186
Depreciation Accounting Entries	187
Fixed Asset Impairment	189
Fixed Asset Disposal	191
Assets Held for Sale	191
Abandoned Assets	195
Idle Assets	195
Fixed Asset Disposal Accounting	195
Fixed Asset Disclosures	196
General Fixed Asset Disclosures	197
Change in Estimate Disclosures	197
Intangible Asset Impairment Disclosures	198
Intangible Asset Disclosures	198
Not-for-Profit Fixed Asset Accounting	200
Initial Recognition of Fixed Assets	200
Restrictions on Contributed Assets	201
Valuation of Contributed Assets	201
Valuation of Contributed Services	202
Valuation of Art, Historical Treasures, and Similar Items	202
Depreciation of Fixed Assets	203

Chapter 21 - Liabilities205

Extinguishments of Liabilities	205
Joint and Several Liability Arrangements	205
Insurance-Related Assessments	206
Prepaid Stored-Value Products	207
Distinguishing Liabilities from Equity	208
Liabilities Disclosures	208

Chapter 22 - Asset Retirement and Environmental Obligations211

Overview of Asset Retirement Obligations	211
The Initial Measurement of an Asset Retirement Obligation	212
Subsequent Measurement of an Asset Retirement Obligation	213
Settlement of an Asset Retirement Obligation	214
Overview of Environmental Obligations	215
Measurement of Environmental Obligations	217
Recoveries Related to Environmental Obligations	218
Asset Retirement and Environmental Obligations Disclosures	218
Asset Retirement Obligations	219
Environmental Obligations	219

Chapter 23 - Exit or Disposal Cost Obligations222

Overview of Exit or Disposal Cost Obligations	222
Exit or Disposal Cost Obligation Disclosures	224

Chapter 24 - Commitments226

Overview of Commitments

226

Chapter 25 - Contingencies229

Loss Contingencies	229
Gain Contingencies	230
Contingency Disclosures	230

Chapter 26 - Guarantees233

Overview of Guarantees	233
Scope of the Guarantees Topic	234
Accounting for Guarantees	236
Direct Guarantees vs. Indirect Guarantees	237
The Form of Guarantee Payment	238
The Guaranteed Party	238
Guarantee Disclosures	238

Chapter 27 - Debt241

General Debt Topics	241
Sales of Future Revenues	241
Increasing Rate Debt	242
Debt with Conversion and Other Options	242
Debt Instruments with Detachable Warrants	242
Convertible Securities	242
Interest Forfeiture	244
Induced Conversions	244
Conversion by Exercise of Call Option	244
Convertible Instruments Issued to Nonemployees as Payment	244
Own-Share Lending Arrangements	244
Participating Mortgage Loans	244
Product Financing Arrangements	246
Debt Modifications and Extinguishments	246
Debt Presentation	248
Callable Debt	248
Classification of Debt that Includes Covenants	248
Debt Issuance Costs	248
Due on Demand Loans	248
Increasing-Rate Debt	249
Revolving Debt Agreements	249
Short-Term Obligations to be Refinanced	249
Subjective Acceleration Clauses	249
Own-Share Lending Arrangements	250
Participating Mortgage Loans	250
Debt Disclosures	250
Long-Term Obligations	250
Short-Term Obligations to be Refinanced	251
Convertible Debt Instruments	251
Own-Share Lending Arrangements	251
Participating Mortgage Loans	252
Unused Commitments	252
Other Debt Disclosures	252

Chapter 28 - Equity254

Overview of Equity	254
The Sale of Stock	255
Dividend Payments	255
Stock Dividends and Stock Splits	256
Stock Dividend	256
Stock Split	256
Treasury Stock	257
Purchase of Treasury Stock	257
Resale of Treasury Stock	258
Cost Method	258
Constructive Retirement Method	259
Equity-Based Payments to Non-Employees	259
Initial Recognition	259
Spinoffs and Reverse Spinoffs	261
Equity Disclosures	262
Rights and Privileges	262
Preferred Stock	262
Contingently Convertible Securities	262
Redeemable Securities	263
Treasury Stock	263
Changes in Shareholders' Equity	263
Equity-Based Payments to Non-Employees	264
Spinoffs and Reverse Spinoffs	264

Chapter 29 - Revenue Recognition266

The Nature of a Customer	266
Steps in Revenue Recognition	267
Step One: Link Contract to Customer	267
Step Two: Note Performance Obligations	269
Step Three: Determine Prices	271
Variable Consideration	271
Possibility of Reversal	273
Sales Taxes	274
Time Value of Money	274
Noncash Consideration	276
Payments to Customers	277
Refund Liabilities	278
Step Four: Allocate Prices to Obligations	278
Allocation of Price Discounts	279
Allocation of Variable Consideration	280
Subsequent Price Changes	281
Step Five: Recognize Revenue	281
Measurement of Progress Completion	283
Output Methods	283
Input Methods	284
Change in Estimate	285
Progress Measurement	285
Right of Return	285
Consistency	286
Contract Modifications	286
Treatment as Separate Contract	286
Treatment as Continuing Contract	287
Entitlement to Payment	289
Bill-and-Hold Arrangements	289
Consideration Received from a Supplier	290
Customer Acceptance	292
Customer Options for Additional Purchases	292
Licensing	294
Nonrefundable Upfront Fees	295
Principal versus Agent	296
Repurchase Agreements	297
Unexercised Rights of Customers	299
Warranties	299
Contract-Related Costs	300
Costs to Obtain a Contract	300
Costs to Fulfill a Contract	301
Amortization of Costs	302
Impairment of Costs	302
Exclusions	302
Revenue Disclosures	303

Chapter 30 - Compensation – General308

Overview of Compensation	308
Compensated Absences	308
Deferred Compensation Arrangements	309
Lump-Sum Payments under Union Contracts	310
Compensation Disclosures	311

Chapter 31 - Compensation – Retirement Benefits313

Overview of Retirement Benefits	313
Defined Benefit Plans	314
Expense Attribution for Delayed Vesting	316
Discount Rates	317
Settlements and Curtailments	317
Termination Benefits	318
Combined Pension Plans	319
Defined Contribution Plans	319
Presentation of Retirement Benefit Information	319
Retirement Benefit Disclosures	320
Defined Benefit Plan Disclosures for Public Companies	320
Defined Benefit Plan Disclosures for Private Companies	323
Disclosures for Defined Benefit Plans in Interim Periods	324
Disclosures for Defined Contribution Plans	324

Chapter 32 - Compensation – Stock Compensation326

Overview of Stock Compensation	326
The Volatility Concept	330
Fair Value Calculation Alternatives	330
Awards Classified as Equity	332
Award Measurement Problems	332
Contingent Features	332
Award Modifications	333
Income Tax Effects	334
Awards Classified as Liabilities	334
Employee Share Purchase Plans	335
Stock-Based Compensation Disclosures	336

Chapter 33 - Other Expenses340

Startup Costs	340
Insurance Costs	341
Retroactive Contracts	341
Claims-Made Contracts	341
Multiple-Year Retrospectively Rated Contracts	343
Contributions Made	343
Real and Personal Property Taxes	344
Advertising Costs	344
Electronic Equipment Waste Obligations	344
Business and Technology Reengineering	344
Other Expenses Disclosures	345
Insurance Cost Disclosures	345
Real and Personal Property Tax Disclosures	345
Advertising Cost Disclosures	345

Chapter 34 - Research and Development347

Overview of Research and Development	347
Research and Development Disclosures	349

Chapter 35 - Income Taxes351

Overview of Income Taxes	351
Accounting for Income Taxes	353
Tax Positions	353
Deferred Tax Expense	355
Applicable Tax Rate	355
Interest and Penalties	355
Intraperiod Tax Allocation	356
Taxes Related to Undistributed Earnings	356
Interim Reporting	357
Income Taxes Presentation	359
Income Taxes Disclosure	360
Balance Sheet	360
Income Statement	360
Other	361

Chapter 36 - Business Combinations364

Overview of Business Combinations	364
Identifiable Assets and Liabilities, and Noncontrolling Interests	366
Goodwill or Gain from Bargain Purchase	368
Goodwill Calculation	368
Bargain Purchase	369
Reverse Acquisitions	369
Related Issues	371
Acquisition of Assets	371
Transactions between Entities under Control of Same Parent	371
Pushdown Accounting	372
Income Taxes	372
Business Combination Disclosures	373
General Disclosures	373
Identifiable Assets and Liabilities, and any Noncontrolling Interest	375
Goodwill or Gain from Bargain Purchase	375
Reverse Acquisitions	376
Transactions between Entities under Control of Same Parent	377
Income Taxes	377

Chapter 37 - Financial Statement Consolidation379

Overview of Consolidations	379
Recognition of a Consolidation	380
Consolidation Examples	382
Recognition of Noncontrolling Interest	382
Sale of Shares by Subsidiary	383
Share of Accumulated Other Comprehensive Income	383
Full Consolidation Example	384
Consolidation of Variable Interest Entities	385
Initial Consolidation	387
Subsequent Consolidation	387
Consolidation of Leasing Entities by Private Companies	387
Consolidation of Contractually-Controlled Entities	387
Control of Partnerships	389
Termination of a Consolidation	389
Consolidation Presentation	390
Consolidation Disclosures	392

Chapter 38 - Derivatives and Hedging396

Other Comprehensive Income	396
Derivative Accounting	398
Hedge Accounting - General	399
Hedge Accounting – Fair Value Hedges	400
Hedge Accounting – Cash Flow Hedges	402
Hedge Accounting – Net Investment Hedges	405
Embedded Derivatives	405
Derivative and Hedging Disclosures	406
General Disclosures	407
Fair Value Hedge Disclosures	408
Cash Flow Hedge Disclosures	408

Chapter 39 - Fair Value Measurement412

The Fair Value Concept	412
Fair Value Differences from Actual Prices Paid	413
Fair Value Measurement Approaches	414
The Net Asset Value Variation	416
Fair Value Measurements for Liabilities	416
Use of Multiple Measurements	416
Fair Value Disclosures	416

Chapter 40 - Financial Instruments420

Off-Balance Sheet Credit Risk	420
Fair Value Option	420
Registration Payment Arrangements	421
Financial Instruments Disclosures	422
Fair Value of Financial Instruments	422
Concentrations of Credit Risk of Financial Instruments	423
Market Risk of Financial Instruments	423
Fair Value Option	423
Registration Payment Arrangements	424
Separate Presentation of Financial Assets and Financial Liabilities	425

Chapter 41 - Foreign Currency Matters427

Foreign Currency Transactions	427
Financial Statement Translation	428
Determination of Functional Currency	429
Translation of Financial Statements	430
Use of Average Exchange Rates	432
Hyperinflationary Effects	432
Derecognition of a Foreign Entity Investment	432
Foreign Currency Disclosures	433

Chapter 42 - Interest435

Overview of Capitalized Interest	435
Assets on Which to Capitalize Interest	436
Assets on Which Interest is not Capitalized	436
The Interest Capitalization Period	437
The Capitalization Rate	438
Calculating Interest Capitalization	439
Overview of Imputed Interest	441
Interest Disclosures	443
Capitalized Interest Disclosures	443
Imputed Interest Disclosures	443

Chapter 43 - Leases446

The Nature of a Lease	446
Lease Components (Lessee)	448
Lease Components (Lessor)	449
Initial Direct Costs	450
Lease Consideration	450
The Lease Term	450
Initial Measurement of Lease Payments	451
Subsequent Measurement of Lease Payments	451
Types of Leases	452
Asset and Liability Recognition (Lessee)	453
Initial Measurement	453
Short-Term Leases	454
Finance Leases	454
Operating Leases	455
Optional Lease Payments	456
Right-of-Use Asset Impairment	456
Leasehold Improvement Amortization	456
Subleases	456
Maintenance Deposits	457
Derecognition	457
Lease Recognition Topics (Lessor)	457
Sales-Type Leases	457
Direct Financing Leases	460
Operating Leases	460
Variable Lease Payments	461
Lease Modifications	461
Lessee Impact	462
Lessor Impact	463
Elections	465
Discount Rate	465
Separation of Non-Lease Components	465
Sale and Leaseback Transactions	465
Lease Presentation	466
Lease Disclosures	467
Lessee Disclosures	468
Lessor Disclosures	469
Sale and Leaseback Transactions	470

Chapter 44 - Nonmonetary Transactions472

Overview of Nonmonetary Transactions	472
Purchases and Sales of Inventory with the Same Counterparty	474
Barter Transactions	475
Exchanges Involving Monetary Consideration	475
Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest	478
Nonmonetary Transaction Disclosures	478

Chapter 45 - Related Party Disclosures480

Overview of Related Parties	480
Related Party Disclosures	480

Chapter 46 - Subsequent Events483

Overview of Subsequent Events	483
Subsequent Event Disclosures	484

Answers to Chapter Questions486

Glossary515

Index527

Course Details

Author: Steven M. Bragg, CPA

Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.

Publication/Revision Date: 11/11/2025

Course Exam Questions (online): 140 (multiple-choice)

Program Delivery Method: NASBA QAS Self-Study

Available Formats of Course Text: Downloadable PDF, Printed/Mailed

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors I.D.: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Cite the accounting principles that underlie Generally Accepted Accounting Principles.
Specify the transactions related to discontinued operations, as well as the disclosures required for certain accounting transactions.
Identify the account classifications used in the balance sheet, as well as the structure of the balance sheet.
State the transactions included in and excluded from other comprehensive income.
Specify the different formats in which the income statement can be presented.
Cite the contents of the sections of the statement of cash flows, and the differences in presentation for the different types of statements of cash flows.
Recognize the disclosures required by the Securities and Exchange Commission.
Identify the situations in which accounting changes are allowed, and note the mechanics of retrospective application of changes.
State the methods used to derive current cost.
Specify the calculations for basic earnings per share and diluted earnings per share.
Identify the assumptions that underlie the integral view and discrete view of interim reporting.
Recognize the situations that can cause reportable risks and uncertainties.
State the segment test rules used to determine reportable segments.
Specify the accounting treatment for lending arrangements and loan origination fees.
Identify how investment securities are measured and how to account for associated credit losses.
Recognize how the equity method is formulated and updated.
Cite how the periodic and perpetual inventory methods are used to derive the cost of goods sold, and how the gross profit method and retail method are used to estimate ending inventory.
Recognize the rules for recognizing and disclosing deferred advertising costs, as well as the accounting for insurance contracts.
Identify the situations in which goodwill is associated with reporting units, and note the rules for conducting impairment testing.
Specify the valuation method used for acquired fixed assets, as well as the calculations for the various depreciation methods.
Identify the assessments and surcharges associated with insurance activities.
State the accounting rules for deferring and recognizing asset retirement obligations.
Specify the circumstances under which the cost of employee and other contractual terminations can be recognized.
Cite the characteristics of and reporting obligations associated with commitments.
State the circumstances under which loss contingencies are recognized, and when they are only disclosed.
Identify the methods used to place valuations on guarantees.
State the components of debt.
Specify the circumstances under which a spinoff occurs, and when a dividend is in arrears.
Identify the evaluation criteria for a contract, the components of the transaction price, and when a contract modification triggers treatment as a new contract.
Recognize the circumstances under which the costs of compensated absences are recognized.
State the key elements of net periodic pension cost, and the accounting for defined benefit and defined contribution plans.
Specify how costs are derived for exercised and unexercised stock options.
Identify the proper expense recognition for insurance contracts and business process reengineering.
State the types of activities classified as research and development, and how research and development costs are to be recognized.
Recognize which tax rate to apply to a reporting period.
Identify the types of acquisitions, and the types of intangible assets that can be recognized as part of an acquisition.
Identify the situations in which a controlling financial interest cannot be determined, as well as the types of eliminations used when conducting a consolidation.
Specify the accounting for derivative speculation and the classifications for hedges and investments. Recognize the methods used to measure hedge effectiveness.
State the concepts upon which fair value measurements are derived.
Cite the circumstances in which the fair value option can be applied, and the disclosures related to financial instruments.
Specify the accounting for payments to suppliers in foreign currencies, as well as how to identify a functional currency.
Identify the situations in which interest capitalization can be used, and when an interest rate should be imputed.
Specify the leasing rules related to asset substitution.
Recall the circumstances under which a separate lease component is considered to exist.
Specify the different types of lease payments.
Recall how the 12-month lease exception works.
Identify the unique characteristics of sales-type and direct financing leases.
Specify the restrictions on the use of the risk-free discount rate when deriving a lease present value.
Specify the valuation alternatives in a nonmonetary exchange, and the usage rules for boot.
Cite the types of entities considered to be related parties, and what information should be disclosed about them.
State the types of events classified as subsequent events, and note which of these events can alter the financial statements.