WGU C213 Accounting for Decision Makers | Balance Sheet
Exam Notes & Practice Questions and Answers
C213 – Accounting for Decision Makers Competency: 3014.1.1 Financial
Analysis
Topic 2: Overview of Financial Statements
Topic: Balance Sheet
1. What are the three main sections of the Balance Sheet; what are the
two main subcategories within each section? What rules determines
how items are sorted into each category for each section?
The three main sections of the 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.
2. What equation determines if the Balance Sheet balances?
The Balance Sheet equation – Assets = Liabilities + Equity. Whenever any
transaction is recorded in the firm’s accounting records, the recording must
always maintain this balance. However, some transactions only affect one
side of the equal sign with two offsetting entries. For example, selling an
asset for cash would only affect the asset side of the equation but would
create a net zero effect on Assets since one asset is being converted to
another.
3. What characteristic of an asset determines the order that it is placed on
the Balance Sheet?
Liquidity or the speed with which it can be turned into cash. Current assets
come before long-term assets because they are expected to be liquidated in
one year. Within current assets, cash comes first because it is already cash.
1
, Accounts receivable usually comes next because all the firm has to do is
collect the receivable to receive the cash.
Inventory usually follows accounts receivable because it has to be sold and
then the money has to be collected to convert it into cash.
4. If a transaction gives the firm ownership of something that that has
future value, the item would be reported in which section of the balance
sheet?
This is the definition of an asset.
2
Exam Notes & Practice Questions and Answers
C213 – Accounting for Decision Makers Competency: 3014.1.1 Financial
Analysis
Topic 2: Overview of Financial Statements
Topic: Balance Sheet
1. What are the three main sections of the Balance Sheet; what are the
two main subcategories within each section? What rules determines
how items are sorted into each category for each section?
The three main sections of the 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.
2. What equation determines if the Balance Sheet balances?
The Balance Sheet equation – Assets = Liabilities + Equity. Whenever any
transaction is recorded in the firm’s accounting records, the recording must
always maintain this balance. However, some transactions only affect one
side of the equal sign with two offsetting entries. For example, selling an
asset for cash would only affect the asset side of the equation but would
create a net zero effect on Assets since one asset is being converted to
another.
3. What characteristic of an asset determines the order that it is placed on
the Balance Sheet?
Liquidity or the speed with which it can be turned into cash. Current assets
come before long-term assets because they are expected to be liquidated in
one year. Within current assets, cash comes first because it is already cash.
1
, Accounts receivable usually comes next because all the firm has to do is
collect the receivable to receive the cash.
Inventory usually follows accounts receivable because it has to be sold and
then the money has to be collected to convert it into cash.
4. If a transaction gives the firm ownership of something that that has
future value, the item would be reported in which section of the balance
sheet?
This is the definition of an asset.
2
