WGU C213 STUDYGUIDE LATEST VERSION SOLUTIONS WITH VERIFIE
ANSWERS GRADED A+ | ASSURED SUCCESS
C213 Study Guide Solutions
Headings
Study Guide
Important terms
Notes
Graphs/Charts
Vocabulary
Questions
Chapter 1: Nature and Purpose of Accounting
Describe the 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. Structures the bookkeeping data so you can make decisions.
Quantitative information, primarily financial in nature, about economic entities that is
intended to be useful in making economic decisions. Accounting information is intended
to be useful in making decisions about the future.
Two types of accounting:
1. Managerial accounting – the gathering and analysis of information for the
purpose of internal decision making.
a. Product costs
b. Breakeven analysis
c. Budgeting
d. Performance evaluation
e. Outsource production
2. Financial Accounting – the gathering, reporting, and analysis of information
primarily for the benefit of external users such as investors and creditors.
a. Credit analysis
b. Regulatory users (such as financial health of bank and insurance
companies.)
1
, c. Estimate the value of a company
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) Preservation of a systematic, quantitative record of an
activity. I.e., phone records, apartment rent payment records, class grading records,
sports statistics. An accounting system is used by a business to handle routine
boookeeping tasks and to structure the information so it can be used to evaluate the
performance and financial status of the business.
Bookkeeping Accounting
- Use judgment in categorizing
Recording each transactions: transactions
- Date - Analysis of non-routine events
- Payee - Producing relevant reports to
- Amount analyze the past and assist in
- Purpose forecasting the future
Routine process - Structuring data to make higher
level decisions
Describe the three financial statements.
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. List as of a point in time, Resources
(assets), obligations (liabilities)
The 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. For a period of time (such as a
year), How much profit did we make?
The 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) For a period of time (such as a year),
Where did our cash come from? Where did it go?
Identify users of financial statements for a particular situation.
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. Commercial loans, lender prediction
2
,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. Potential gains on
investment.
Company Management
Managers use financial accounting data to formulate company goals, to compute
bonuses for employees, and to illuminate company weaknesses. Goals, bonuses,
identify weaknesses
Suppliers and Customers
Suppliers, customers, and employees use financial statements to tell them about the
long-run prospects of a company. prospects
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. Bonuses, evaluate employer (pensions, retirement,
benefits), contract negotiations
Competitors
Competitors use financial accounting information to reveal strategic opportunities within
their industry. Strategic opportunities.
Government Agencies
Government agencies use financial statement data to bolster political and regulatory
positions for and against companies.
Politicians
Politicians use financial statement data to bolster political and regulatory positions for
and against companies.
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)
3
, Differentiate the roles of important accreditation organizations.
The Practice of accounting involves adherence to the established accounting rules as
well as the use of judgment.
GAAP – “generally accepted accounting principles”
Financial Accounting Standards Board (FASB) – Established U.S. accounting rules. Not
a government agency; private establishment and supported by the joint efforts of the US
business community, financial analysts, and practicing accountings. Has no legal power
to enforce the accounting standards, but maintains influence by protecting prestige and
reputation.
Securities and Exchange Commission (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 are hiding or manipulating financial data.
The American Institute of Certified Public Accountants (AICPA) is the professional
organization of certified public accountants (CPAs) in the United States.
CPA Accreditation - 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.
Public Company Accounting Oversight Board (PCAOB) – The 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.
Inspects the audit practices of registered audit firms, statuary authority to investigate
questionable audit practices and impose sanctions such as barring an audit firm from
auditing SEC-registered companies.
Internal Revenue Service (IRS) – establishes rules to define exactly when income
should be taxed. It has no role in setting financial accounting rules; and a company’s
financial statements are not used in determining how much tax the company must pay.
International Accounting Standards Board (IASB) – Formed to develop common set of
worldwide accounting standards; increasingly accepted worldwide, but FASB rules are
still standard in US. The accounting standards produced by the IASB are referred to as
International Financial Reporting Standards (IFRS)
Describe current trends that are causing changes in the field of accounting.
Three factors have combined to create change in accounting; rapid advance in
information technology, the international integration of worldwide business, and the
increased scrutiny associated with large corporate accounting scandals.
4
ANSWERS GRADED A+ | ASSURED SUCCESS
C213 Study Guide Solutions
Headings
Study Guide
Important terms
Notes
Graphs/Charts
Vocabulary
Questions
Chapter 1: Nature and Purpose of Accounting
Describe the 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. Structures the bookkeeping data so you can make decisions.
Quantitative information, primarily financial in nature, about economic entities that is
intended to be useful in making economic decisions. Accounting information is intended
to be useful in making decisions about the future.
Two types of accounting:
1. Managerial accounting – the gathering and analysis of information for the
purpose of internal decision making.
a. Product costs
b. Breakeven analysis
c. Budgeting
d. Performance evaluation
e. Outsource production
2. Financial Accounting – the gathering, reporting, and analysis of information
primarily for the benefit of external users such as investors and creditors.
a. Credit analysis
b. Regulatory users (such as financial health of bank and insurance
companies.)
1
, c. Estimate the value of a company
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) Preservation of a systematic, quantitative record of an
activity. I.e., phone records, apartment rent payment records, class grading records,
sports statistics. An accounting system is used by a business to handle routine
boookeeping tasks and to structure the information so it can be used to evaluate the
performance and financial status of the business.
Bookkeeping Accounting
- Use judgment in categorizing
Recording each transactions: transactions
- Date - Analysis of non-routine events
- Payee - Producing relevant reports to
- Amount analyze the past and assist in
- Purpose forecasting the future
Routine process - Structuring data to make higher
level decisions
Describe the three financial statements.
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. List as of a point in time, Resources
(assets), obligations (liabilities)
The 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. For a period of time (such as a
year), How much profit did we make?
The 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) For a period of time (such as a year),
Where did our cash come from? Where did it go?
Identify users of financial statements for a particular situation.
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. Commercial loans, lender prediction
2
,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. Potential gains on
investment.
Company Management
Managers use financial accounting data to formulate company goals, to compute
bonuses for employees, and to illuminate company weaknesses. Goals, bonuses,
identify weaknesses
Suppliers and Customers
Suppliers, customers, and employees use financial statements to tell them about the
long-run prospects of a company. prospects
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. Bonuses, evaluate employer (pensions, retirement,
benefits), contract negotiations
Competitors
Competitors use financial accounting information to reveal strategic opportunities within
their industry. Strategic opportunities.
Government Agencies
Government agencies use financial statement data to bolster political and regulatory
positions for and against companies.
Politicians
Politicians use financial statement data to bolster political and regulatory positions for
and against companies.
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)
3
, Differentiate the roles of important accreditation organizations.
The Practice of accounting involves adherence to the established accounting rules as
well as the use of judgment.
GAAP – “generally accepted accounting principles”
Financial Accounting Standards Board (FASB) – Established U.S. accounting rules. Not
a government agency; private establishment and supported by the joint efforts of the US
business community, financial analysts, and practicing accountings. Has no legal power
to enforce the accounting standards, but maintains influence by protecting prestige and
reputation.
Securities and Exchange Commission (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 are hiding or manipulating financial data.
The American Institute of Certified Public Accountants (AICPA) is the professional
organization of certified public accountants (CPAs) in the United States.
CPA Accreditation - 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.
Public Company Accounting Oversight Board (PCAOB) – The 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.
Inspects the audit practices of registered audit firms, statuary authority to investigate
questionable audit practices and impose sanctions such as barring an audit firm from
auditing SEC-registered companies.
Internal Revenue Service (IRS) – establishes rules to define exactly when income
should be taxed. It has no role in setting financial accounting rules; and a company’s
financial statements are not used in determining how much tax the company must pay.
International Accounting Standards Board (IASB) – Formed to develop common set of
worldwide accounting standards; increasingly accepted worldwide, but FASB rules are
still standard in US. The accounting standards produced by the IASB are referred to as
International Financial Reporting Standards (IFRS)
Describe current trends that are causing changes in the field of accounting.
Three factors have combined to create change in accounting; rapid advance in
information technology, the international integration of worldwide business, and the
increased scrutiny associated with large corporate accounting scandals.
4
