WGU C213 Accounting for Decision Makers study guide
Exam Questions and Verified Rationalized Answers
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1. 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)
2. 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.
3. income statement: reports the amount of net income earned by a company dur- ing 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.
4. 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)
5. 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.
6. Fin Statement Users: Investors: Investors want information to help them esti- mate how
much cash they can expect to directly receive from the business in the future if they invest
,in it now.
7. Fin Statement Users: Company Management: Managers use financial ac- counting data
to formulate company goals, to compute bonuses for employees, and to illuminate company
weaknesses.
8. Fin Statement Users: Suppliers and Customers: Suppliers, customers, and employees
use financial statements to tell them about the long-run prospects of a company.
9. Fin Statement Users: Employees: Financial statement data, as mentioned ear- lier, 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.
10. Fin Statement Users: Competitors: Competitors use financial accounting in- formation
to reveal strategic opportunities within their industry.
11. Government Agencies: Government agencies use financial statement data to bolster
political and regulatory positions for and against companies.
,12. 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)
13. Fin Statement Users: Politicians: Politicians use financial statement data to bolster
political and regulatory positions for and against companies.
14. Acct Rules: Financial Accountings Standards Board (FASB): sets account- ing 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 main- tains 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)
15. 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)
16. Acct Org: CPA Accreditation: The American Institute of Certified Public Ac- countants
(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)
17. Acct Org: Public Company Accounting Oversight Board (PCAOB): deter- mines 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.
Exam Questions and Verified Rationalized Answers
100% Guaranteed Pass Score
1. 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)
2. 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.
3. income statement: reports the amount of net income earned by a company dur- ing 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.
4. 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)
5. 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.
6. Fin Statement Users: Investors: Investors want information to help them esti- mate how
much cash they can expect to directly receive from the business in the future if they invest
,in it now.
7. Fin Statement Users: Company Management: Managers use financial ac- counting data
to formulate company goals, to compute bonuses for employees, and to illuminate company
weaknesses.
8. Fin Statement Users: Suppliers and Customers: Suppliers, customers, and employees
use financial statements to tell them about the long-run prospects of a company.
9. Fin Statement Users: Employees: Financial statement data, as mentioned ear- lier, 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.
10. Fin Statement Users: Competitors: Competitors use financial accounting in- formation
to reveal strategic opportunities within their industry.
11. Government Agencies: Government agencies use financial statement data to bolster
political and regulatory positions for and against companies.
,12. 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)
13. Fin Statement Users: Politicians: Politicians use financial statement data to bolster
political and regulatory positions for and against companies.
14. Acct Rules: Financial Accountings Standards Board (FASB): sets account- ing 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 main- tains 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)
15. 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)
16. Acct Org: CPA Accreditation: The American Institute of Certified Public Ac- countants
(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)
17. Acct Org: Public Company Accounting Oversight Board (PCAOB): deter- mines 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.
