C213 Accounting for Decision Makers Complete Study Guide 2026-2027 new
update Western Governors University
–
D e c i s i o n M a k e r s
1. Foundations 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)
Principles & Assumptions
• Cost Principle – Transactions are recorded at their purchase price (exchange value at
transaction date).
Why: Provides reliability because historical cost is objective and verifiable.
Example: If land was purchased for $100,000 ten years ago, it stays on the books at
$100,000 even if its market value rises to $400,000.
• Going Concern Assumption – Assumes the company will continue operating indefinitely,
not liquidating.
Why: Justifies deferring expenses like depreciation rather than expensing everything
immediately.
,• Monetary Measurement – Only events measurable in money are recorded.
Example: Employee loyalty isn’t recorded, but salaries paid are.
• Arm’s Length Transactions – Transactions between independent parties free from
bias/pressure, ensuring fair market value.
• Comparability – Statements are more useful when consistent across time and firms.
Benchmarking
• Conservatism – When in doubt, recognize the option with the least favorable outcome
(anticipate losses, not gains).
• Materiality – Only information big enough to impact decisions should be reported.
• Relevance – Data must affect decision-making to be useful.
, • Recognition – Officially recording an item in financial statements.
• Valuation – Determining dollar amounts for items (e.g., valuing assets at cost or fair
value).
• Revenue Recognition – Revenue is recognized when goods/services are delivered,
earning is complete, and collection is reasonably assured.
• Articulation - 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 number 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.
2. Financial Statements – 3 – BS, IS, SCF
Core Users
• External users: Investors, creditors, government agencies, competitors, suppliers,
customers.
• Technology – Information technology has speeded up the pace with which accounting
data and reports are produced and dramatically increased the volume of accounting
information that firms can provide to investors. Investors cannot access a firm’s database.
o 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. Borrower
benefit: Better financial info → lower loan rates (reduced lender uncertainty).
o 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.
o Competitors use financial accounting information to reveal strategic
opportunities within their industry.
o Government agencies use financial statement data to bolster political and
regulatory positions for and against companies.
o Politicians use financial statement data to bolster political and regulatory
positions for and against companies.
o 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)
• Internal users: Management, employees (health benefits)
o Company Management Managers use financial accounting data to formulate
company goals, to compute bonuses for employees, and to illuminate company
weaknesses.
o 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.
The Accounting Equation
Assets = Liabilities + Equity
Equation can be expanded
• Assets = Liabilities + Contributed capital + RE
• RE = BEG RE + NI – DIV
• Equity is also called Net Assets
▪ Rearrange equation: Equity = Assets - Liabilities
Logic: Assets are funded by liabilities (creditors) and equity (owners).
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.
Financial Capital Maintenance – says a company earns income only if net assets at the end
exceed net assets at the beginning after excluding effects of owner’s transactions (contributions
or distributions)
The following data were taken from the records of Moss Corporation for the year ending
December 31, 2012:
01/01/12 12/31/12
Assets $11,250 ?
Liabilities 8,580 $10,365
Equity ? 6,465
Given the above information, owners' equity on January 1, 2012 was
• $885
• $7,695
• $19,830
update Western Governors University
–
D e c i s i o n M a k e r s
1. Foundations 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)
Principles & Assumptions
• Cost Principle – Transactions are recorded at their purchase price (exchange value at
transaction date).
Why: Provides reliability because historical cost is objective and verifiable.
Example: If land was purchased for $100,000 ten years ago, it stays on the books at
$100,000 even if its market value rises to $400,000.
• Going Concern Assumption – Assumes the company will continue operating indefinitely,
not liquidating.
Why: Justifies deferring expenses like depreciation rather than expensing everything
immediately.
,• Monetary Measurement – Only events measurable in money are recorded.
Example: Employee loyalty isn’t recorded, but salaries paid are.
• Arm’s Length Transactions – Transactions between independent parties free from
bias/pressure, ensuring fair market value.
• Comparability – Statements are more useful when consistent across time and firms.
Benchmarking
• Conservatism – When in doubt, recognize the option with the least favorable outcome
(anticipate losses, not gains).
• Materiality – Only information big enough to impact decisions should be reported.
• Relevance – Data must affect decision-making to be useful.
, • Recognition – Officially recording an item in financial statements.
• Valuation – Determining dollar amounts for items (e.g., valuing assets at cost or fair
value).
• Revenue Recognition – Revenue is recognized when goods/services are delivered,
earning is complete, and collection is reasonably assured.
• Articulation - 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 number 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.
2. Financial Statements – 3 – BS, IS, SCF
Core Users
• External users: Investors, creditors, government agencies, competitors, suppliers,
customers.
• Technology – Information technology has speeded up the pace with which accounting
data and reports are produced and dramatically increased the volume of accounting
information that firms can provide to investors. Investors cannot access a firm’s database.
o 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. Borrower
benefit: Better financial info → lower loan rates (reduced lender uncertainty).
o 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.
o Competitors use financial accounting information to reveal strategic
opportunities within their industry.
o Government agencies use financial statement data to bolster political and
regulatory positions for and against companies.
o Politicians use financial statement data to bolster political and regulatory
positions for and against companies.
o 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)
• Internal users: Management, employees (health benefits)
o Company Management Managers use financial accounting data to formulate
company goals, to compute bonuses for employees, and to illuminate company
weaknesses.
o 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.
The Accounting Equation
Assets = Liabilities + Equity
Equation can be expanded
• Assets = Liabilities + Contributed capital + RE
• RE = BEG RE + NI – DIV
• Equity is also called Net Assets
▪ Rearrange equation: Equity = Assets - Liabilities
Logic: Assets are funded by liabilities (creditors) and equity (owners).
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.
Financial Capital Maintenance – says a company earns income only if net assets at the end
exceed net assets at the beginning after excluding effects of owner’s transactions (contributions
or distributions)
The following data were taken from the records of Moss Corporation for the year ending
December 31, 2012:
01/01/12 12/31/12
Assets $11,250 ?
Liabilities 8,580 $10,365
Equity ? 6,465
Given the above information, owners' equity on January 1, 2012 was
• $885
• $7,695
• $19,830
