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WGU c213 study guide Exam/112 Questions with complete solutions
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WGU c213 study guide Exam/112 Questionswith complete solutions
purpose of accounting - -Accounting is the recording of the day-to-day
financial activities of a company and the organization of that information into
summary reports used to evaluate the company's financial status.
Bookkeeping is a part of accounting. Bookkeeping refers to the process of
recording transactions into various accounts, which is the first step in
accounting. The next step is to analyze the accounts and organize them into
financial statements and other useful reports. (Reference topic 1.1)
-The balance sheet - -reports a company's assets, liabilities, and owners'
equity. It reports the financial position of a firm at a point in time.
-income statement - -reports the amount of net income earned by a
company during a period. Net income is the excess of a company's revenues
over its expenses. It reports the financial performance of a firm over a period
of time.
-statement of cash flows - -reports the amount of cash collected and paid
out by a company in the following three types of activities: operating,
investing, and financing over a period of time. (Reference topic 1.2)
-Fin Statement Users: Lenders - -Banks use companies' financial statements
in making decisions about commercial loans. The financial statements are
useful because they help the lender predict the future ability of the borrower
to repay the loan.
-Fin Statement Users: Investors - -Investors want information to help them
estimate how much cash they can expect to directly receive from the
business in the future if they invest in it now.
-Fin Statement Users: Company Management - -Managers use financial
accounting data to formulate company goals, to compute bonuses for
employees, and to illuminate company weaknesses.
-Fin Statement Users: Suppliers and Customers - -Suppliers, customers, and
employees use financial statements to tell them about the long-run
prospects of a company.
-Fin Statement Users: Employees - -Financial statement data, as mentioned
earlier, are used in determining employee bonuses. In addition, financial
accounting information can help an employee evaluate the employer's ability
to fulfill its long-run promises, such as for pensions and retiree health care
,benefits. Financial statements are also important in contract negotiations
between labor and management.
-Fin Statement Users: Competitors - -Competitors use financial accounting
information to reveal strategic opportunities within their industry.
-Government Agencies - -Government agencies use financial statement
data to bolster political and regulatory positions for and against companies.
-Fin Statement Users: The Press - -Reporters use financial accounting data
as background information and to indicate which companies are undergoing
significant changes in financial status. (Reference Topic 1.3)
-Fin Statement Users: Politicians - -Politicians use financial statement data
to bolster political and regulatory positions for and against companies.
-Acct Rules: Financial Accountings Standards Board (FASB) - -sets
accounting rules for the private section in the U.S.. It is a private, non-profit
body established and supported by the joint efforts of the U.S. business
community, financial analysts, and practicing accountants.
The FASB has no legal power to enforce the accounting standards it sets but
maintains its influence by carefully protecting its prestige and reputation.
The standards it sets are called Generally Accepted Accounting Standards
(GAAP). These are a common set of accounting principles, standards, and
procedures that companies must follow when they compile their financial
statements. (Reference Topic 1.4)
-Acct Rules: Securities and Exchange Commission (SEC) - -has the legal
authority to set accounting rules, but has deferred that responsibility to the
FASB in most cases. The SEC regulates U.S. stock exchanges and seeks to
create a fair information environment in which investors can buy and sell
stocks without fear that companies who sell stocks to the general public are
hiding or manipulating financial data. (Reference topic 1.5)
-Acct Org: CPA Accreditation - -The American Institute of Certified Public
Accountants (AICPA) is the professional organization of certified public
accountants (CPAs) in the United States. A CPA is someone who has taken a
minimum number of college-level accounting classes, has passed the CPA
exam, and has met other requirements set by his or her state. A CPA firm is
a company that provides freelance business advice, particularly in
connection with accounting issues and executes the vast majority of external
audits in the US.
The AICPA sets ethical standards for CPAs, provides continuing education for
them, writes and grades the CPA exam, lobbies for legislation favored by
CPAs, and provides other support to CPAs. Its oversight of the CPA exam is
its main role in accreditation. However, to be accredited as a CPA you must
, meet the requirements of the state in which you plan to practice. The
requirements for each state are set by that state's legislature and overseen
by that state's Board of Accountancy, which is a state agency. (Reference
Topic 1.5)
-Acct Org: Public Company Accounting Oversight Board (PCAOB) - -
determines who can audit public companies regardless of whether the audit
firm is accredited by a state Board of Accountancy. Thus, they accredit firms
that can audit public companies.
-Current Trends changing Accounting: Globalization - -As more and more
business do business globally, capital flows more freely across national
boundaries. This means investors can choose to invest in firms all over the
planet. To help them make investment decisions, the global accounting and
regulatory communities are working to bring accounting standards around
the world into agreement the IASB was one step in that direction, but nations
still control the accounting standards used within their borders and so much
of the standardization is being done through voluntary cooperation
-Current Trends changing Accounting: Technology - -Information technology
has speeded up the pace with which accounting data and reports are
produced and dramatically increased the volume of accounting information
that firms can provide to investors. (Reference Topic 1.6)
-components of a balance sheet - -Balance Sheet are Assets, Liabilities, and
Equity. Both assets and liabilities are further separated into current and long
term based on whether the asset is expected to be consumed or the liability
paid within a year. Assets expected to be consumed and liabilities expected
to be paid within a year are current and those that will be consumed or paid
after a year are long-term.
Equity is separated into paid in capital (also referred to as capital stock) and
retained earnings. Paid in capital is created when an owner buys stock from
the firm. Retained earnings are the accumulated earnings of the firm (i.e.,
net income over time) that have not been paid back in dividends. Paid in
capital also is referred to as contributed capital while retained earnings is
earned capital.
-components of the income statement - -Income Statement describes a
company's financial performance for a period of time. A company's expenses
are subtracted from its revenues and gains and losses are also factored in
computing net income. Net income helps explain the change in retained
earnings between two Balance Sheet dates, along with dividends and
unrealized gains and losses.
A single step income statement lumps all revenues together and subtracts all
expenses to calculate net income. A multiple-step presents subtotals that
highlight key performance measures. Its categories include:
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