WGU C213 ACCOUNTING FOR DECISION MAKERS FINAL EXAM STUDY GUIDE QUESTIONS AND CORRECT ANSWERS COMPLETE ALL 11 CHAPTERS QUESTIONS AND ANSWERS

WGU C213 ACCOUNTING FOR DECISION MAKERS FINAL EXAM STUDY GUIDE QUESTIONS AND CORRECT ANSWERS COMPLETE ALL 11 CHAPTERS QUESTIONS AND ANSWERS 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. 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) 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. 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. 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) 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. 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. Company Management Managers use financial accounting data to formulate company goals, to compute bonuses for employees, and to illuminate company weaknesses. Suppliers and Customers Suppliers, customers, and employees use financial statements to tell them about the long-run prospects of a company. 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. Competitors Competitors use financial accounting information to reveal strategic opportunities within their industry. 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. 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) Identify U.S. accounting rules and their origins. The Financial Accountings Standards Board (FASB) 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) 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) Differentiate the roles of important accreditation organizations. CPA Accreditation - 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) 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. Describe current trends that are causing changes in the field of accounting. Globalization – As more and more business do business globally, capital flows more freely across national boundaries. This means investors can choose to invest in firms all over the planet. To help them make investment decisions, the global accounting and regulatory communities are working to bring accounting standards around the world into agreement the IASB was one step in that direction, but nations still control the accounting standards used within their borders and so much of the standardization is being done through voluntary cooperation 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. (Reference Topic 1.6) Chapter 2: Overview of Financial Statements Identify the purposes of financial statements in specific situations. The main different uses of financial statements depends on how different users use them. Here is a list of the major users and how their use of financial statements differs. 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. 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. Company Management Managers use financial accounting data to formulate company goals, to compute bonuses for employees, and to illuminate company weaknesses. Suppliers and Customers Suppliers, customers, and employees use financial statements to tell them about the long-run prospects of a company. 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