WGU C213 Study Guide with Accurate Solutions
Chapter 1: Nature and Purpose of Accounting
• Describe the purpose of accounting.
• Accounting is the recording of day to day financial activities of a
company and the organization of that information into summary
reports used to analyze and evaluate a company’s financial
status.
•
• Accrual vs Cash basis Accounting
• Accrual – Transactions recorded in the periods in which
the events occur. This includes expenses as well.
• Cash Accounting – Revenues and expenses only
recognized when cash is received or paid. This is not
GAAP.
• Describe the three financial statements.
• Income Statement – How much do you make? Revenues –
Expenses = Net Income/Loss
• Balance Sheet – As a point in time how much do we have and
how much do we owe. Reports assets & liabilities at a specific
point in time.
• Assets = Liability + Equity
• Prepared as of a specific Date
• Current Assets = Assets that will turn to cash within 12
months
,• Statement of Cash Flow – Where did the cash come from,
what was it used for and what was the change?
, • 3 Sections Operating, Investing and Financing
• 2 Methods - Direct (tested) Indirect (rarely tested)
• Memorize Figure 6-2 or see screenshot
• Identify U.S. accounting rules and their origins.
• Differentiate the roles of important accreditation organizations.
• FASB – Financial Accounting Standards Board
• Sets the standards for accounting
• Private, not Gov’t – not legal authority
• GAAP – Generally Accepted Accounting Principles
• SEC – Security’s Exchange Commission
• US gov’t agency
• Regulates stock exchanges. Seeks to
create fair environment for investors.
• American Institute of Certified Public Accountants (AICPA)
• Sets auditing standards
• Creates and monitors CPA exam
• CPA only person who can sign an audit report
• Public Company Accounting Oversight Board
• PCAOB was created by Sarbanes-Oxley Act
Chapter 1: Nature and Purpose of Accounting
• Describe the purpose of accounting.
• Accounting is the recording of day to day financial activities of a
company and the organization of that information into summary
reports used to analyze and evaluate a company’s financial
status.
•
• Accrual vs Cash basis Accounting
• Accrual – Transactions recorded in the periods in which
the events occur. This includes expenses as well.
• Cash Accounting – Revenues and expenses only
recognized when cash is received or paid. This is not
GAAP.
• Describe the three financial statements.
• Income Statement – How much do you make? Revenues –
Expenses = Net Income/Loss
• Balance Sheet – As a point in time how much do we have and
how much do we owe. Reports assets & liabilities at a specific
point in time.
• Assets = Liability + Equity
• Prepared as of a specific Date
• Current Assets = Assets that will turn to cash within 12
months
,• Statement of Cash Flow – Where did the cash come from,
what was it used for and what was the change?
, • 3 Sections Operating, Investing and Financing
• 2 Methods - Direct (tested) Indirect (rarely tested)
• Memorize Figure 6-2 or see screenshot
• Identify U.S. accounting rules and their origins.
• Differentiate the roles of important accreditation organizations.
• FASB – Financial Accounting Standards Board
• Sets the standards for accounting
• Private, not Gov’t – not legal authority
• GAAP – Generally Accepted Accounting Principles
• SEC – Security’s Exchange Commission
• US gov’t agency
• Regulates stock exchanges. Seeks to
create fair environment for investors.
• American Institute of Certified Public Accountants (AICPA)
• Sets auditing standards
• Creates and monitors CPA exam
• CPA only person who can sign an audit report
• Public Company Accounting Oversight Board
• PCAOB was created by Sarbanes-Oxley Act
