WGU c213 study guide
ABC Method (vs Traditional) - ANS - More accurate because it does a better job of
identifying activities that actually drive overhead costs and how different
product's production methods drive those costs.
\ABC Method Steps - ANS - 1. A company identifies business activities that create
overhead costs, e.g. setting up and shutting down an assembly line.
2. Measure those costs and accumulate in cost pools. That is a cost pool
accumulates the overhead costs of a single overhead generating activity.
3. Identify a driver, i.e. quantitative measure, of the level of activity like number of
setups for setting up and shutting down an assembly line.
4. Use driver counts per product to allocate cost pools to products.
5. Make decisions based on the results.
While ABC is more complex and costly to implement, it is more accurate. The
process of developing an ABC system can also help the firm identify problem
areas in their production process.
Using ABC tends to be worth the extra cost when a firm produces multiple
products that are produced in very different ways (i.e., have fairly complex
production processes). If the firm only has one produce or if their products are
very similar in how they are produced, then ABC.
\ABC Method Steps abbreviated - ANS - 1. Identify, 2. measure costs, 3. identify
driver 4. Use Driver counts , 5. make decisions
\Acct Org: CPA Accreditation - ANS - 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) - ANS -
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.
\Acct Rules: Financial Accountings Standards Board (FASB) - ANS - 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) - ANS - 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)
\appropriate cost drivers (ABC Activity Category ) - ANS - Identifying the
appropriate cost driver for a specific situation is done by finding a quantitative
measure that captures changes in the level of an overhead generating activity.
Beyond this general rule, you need to just look at the nature of the activity and
think about what might be the right quantities measure that would capture how
the activity varies in size. Here is an example from the pre-assessment:
\Articulation - ANS - In an accounting context, articulation means that the three
primary financial statements are not isolated lists of numbers but are an
integrated set of reports on a company's financial status. The statement of cash
flows contains the detailed explanation for why the balance sheet cash amount
changed from beginning of year to end of year. The income statement, combined
with the amount of dividends declared during the year, explains the change in
retained earnings shown on the balance sheet. Cash from operations on the
statement of cash flows is transformed into net income through the accounting
adjustments applied to the raw cash flow data.
\Asset Turnover Ratio - ANS - Sales / total assets
It measures the how well the firm is generating sales from its assets or how
productive the firm's assets are at generating sales.
\Assets-to-Equity Ratio (Part of DuPont Formula) - ANS - Total assets / Equity
Very similar to the debt ratio it jointly measures the debt/burden and leverage
used by the firm. However, instead of looking at the issue from the standpoint of
, the creditors, it does so from the standpoint of the owners. However, since assets
= liabilities + equity, it is really measuring the same thing just from a different
viewpoint.
\Average Collection period - ANS - Accounts receivable / Average daily sales
The average number of days it takes the firm to collect accounts receivables. It is
also called the firm's collection period.
\basic cost behavior patterns change as sales volumes change - ANS - Variable
costs - Variable costs, by definition, vary in total proportionately to the number of
units sold. However, the variable cost per unit sold is fixed within a relevant
range.
Fixed costs - Fixed costs, by definition, stay the same in total as units sold
changes. However, because the total fixed costs stay the same, the per-unit fixed
costs must vary inversely with units sold. That is, if you sell one more unit and
the total fixed costs stay the same, the per-unit fixed costs must fall because you
are spreading the same fixed costs over more units. The reverse is true if you sell
on less unit.
\Batch (ABC Activity Category ) - ANS - activities that take place in order to
support a batch or production run, regardless of the size of the batch.
Inspections, machine setups, movement of, and accounting for materials
\Cash flow adequacy ratio (cash cow?) - ANS - Cash from operations / by
expenditures for fixed asset additions + acquisitions of new businesses.
(Cash from Operations / Cash Paid PPE)
It measures whether a firm's cash flows from operations are adequate to maintain
and expand the firm's productive capacity.
\Cash Flow-to-Net Income - ANS - Cash flows from operations / net income
It measures the relationship between net income and cash flows from operations.
Since cash flows from operations are the cash equivalent of net income, the
comparison measures how effectively a firm is turning its income into usable
cash. Firms can't spend net income and need to convert it to operating cash to
make use of their income.
\Cash Times Interest Earned - ANS - (Cash from operations + cash paid for
interest + cash paid for income taxes) / cash paid for interest
Very similar to times interest earned except it measures the burden interest
payments place on operating cash flows before cash outflows for interest and
taxes.
ABC Method (vs Traditional) - ANS - More accurate because it does a better job of
identifying activities that actually drive overhead costs and how different
product's production methods drive those costs.
\ABC Method Steps - ANS - 1. A company identifies business activities that create
overhead costs, e.g. setting up and shutting down an assembly line.
2. Measure those costs and accumulate in cost pools. That is a cost pool
accumulates the overhead costs of a single overhead generating activity.
3. Identify a driver, i.e. quantitative measure, of the level of activity like number of
setups for setting up and shutting down an assembly line.
4. Use driver counts per product to allocate cost pools to products.
5. Make decisions based on the results.
While ABC is more complex and costly to implement, it is more accurate. The
process of developing an ABC system can also help the firm identify problem
areas in their production process.
Using ABC tends to be worth the extra cost when a firm produces multiple
products that are produced in very different ways (i.e., have fairly complex
production processes). If the firm only has one produce or if their products are
very similar in how they are produced, then ABC.
\ABC Method Steps abbreviated - ANS - 1. Identify, 2. measure costs, 3. identify
driver 4. Use Driver counts , 5. make decisions
\Acct Org: CPA Accreditation - ANS - 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) - ANS -
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.
\Acct Rules: Financial Accountings Standards Board (FASB) - ANS - 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) - ANS - 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)
\appropriate cost drivers (ABC Activity Category ) - ANS - Identifying the
appropriate cost driver for a specific situation is done by finding a quantitative
measure that captures changes in the level of an overhead generating activity.
Beyond this general rule, you need to just look at the nature of the activity and
think about what might be the right quantities measure that would capture how
the activity varies in size. Here is an example from the pre-assessment:
\Articulation - ANS - In an accounting context, articulation means that the three
primary financial statements are not isolated lists of numbers but are an
integrated set of reports on a company's financial status. The statement of cash
flows contains the detailed explanation for why the balance sheet cash amount
changed from beginning of year to end of year. The income statement, combined
with the amount of dividends declared during the year, explains the change in
retained earnings shown on the balance sheet. Cash from operations on the
statement of cash flows is transformed into net income through the accounting
adjustments applied to the raw cash flow data.
\Asset Turnover Ratio - ANS - Sales / total assets
It measures the how well the firm is generating sales from its assets or how
productive the firm's assets are at generating sales.
\Assets-to-Equity Ratio (Part of DuPont Formula) - ANS - Total assets / Equity
Very similar to the debt ratio it jointly measures the debt/burden and leverage
used by the firm. However, instead of looking at the issue from the standpoint of
, the creditors, it does so from the standpoint of the owners. However, since assets
= liabilities + equity, it is really measuring the same thing just from a different
viewpoint.
\Average Collection period - ANS - Accounts receivable / Average daily sales
The average number of days it takes the firm to collect accounts receivables. It is
also called the firm's collection period.
\basic cost behavior patterns change as sales volumes change - ANS - Variable
costs - Variable costs, by definition, vary in total proportionately to the number of
units sold. However, the variable cost per unit sold is fixed within a relevant
range.
Fixed costs - Fixed costs, by definition, stay the same in total as units sold
changes. However, because the total fixed costs stay the same, the per-unit fixed
costs must vary inversely with units sold. That is, if you sell one more unit and
the total fixed costs stay the same, the per-unit fixed costs must fall because you
are spreading the same fixed costs over more units. The reverse is true if you sell
on less unit.
\Batch (ABC Activity Category ) - ANS - activities that take place in order to
support a batch or production run, regardless of the size of the batch.
Inspections, machine setups, movement of, and accounting for materials
\Cash flow adequacy ratio (cash cow?) - ANS - Cash from operations / by
expenditures for fixed asset additions + acquisitions of new businesses.
(Cash from Operations / Cash Paid PPE)
It measures whether a firm's cash flows from operations are adequate to maintain
and expand the firm's productive capacity.
\Cash Flow-to-Net Income - ANS - Cash flows from operations / net income
It measures the relationship between net income and cash flows from operations.
Since cash flows from operations are the cash equivalent of net income, the
comparison measures how effectively a firm is turning its income into usable
cash. Firms can't spend net income and need to convert it to operating cash to
make use of their income.
\Cash Times Interest Earned - ANS - (Cash from operations + cash paid for
interest + cash paid for income taxes) / cash paid for interest
Very similar to times interest earned except it measures the burden interest
payments place on operating cash flows before cash outflows for interest and
taxes.
