WGU c213 study guide
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)
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.
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.
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)
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.
Fin Statement Users: 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.
Fin Statement Users: Company Management -
✔️ Managers use financial accounting data to formulate company goals, to compute
bonuses for employees, and to illuminate company weaknesses.
Fin Statement Users: Suppliers and Customers -
✔️ Suppliers, customers, and employees use financial statements to tell them about
the long-run prospects of a company.
Fin Statement Users: 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.
,Fin Statement Users: 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.
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)
Fin Statement Users: Politicians -
✔️ Politicians use financial statement data to bolster political and regulatory
positions for and against companies.
Acct Rules: 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)
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)
Acct Org: 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)
Acct Org: Public Company Accounting Oversight Board (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.
Current Trends changing 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
Current Trends changing Accounting: 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)
components of a balance sheet -
✔️ Balance Sheet are Assets, Liabilities, and Equity. Both assets and liabilities are
further separated into current and long term based on whether the asset is expected
to be consumed or the liability paid within a year. Assets expected to be consumed
and liabilities expected to be paid within a year are current and those that will be
consumed or paid after a year are long-term.
Equity is separated into paid in capital (also referred to as capital stock) and retained
earnings. Paid in capital is created when an owner buys stock from the firm.
Retained earnings are the accumulated earnings of the firm (i.e., net income over
time) that have not been paid back in dividends. Paid in capital also is referred to as
contributed capital while retained earnings is earned capital.
components of the income statement -
✔️ Income Statement describes a company's financial performance for a period of
time. A company's expenses are subtracted from its revenues and gains and losses
are also factored in computing net income. Net income helps explain the change in
retained earnings between two Balance Sheet dates, along with dividends and
unrealized gains and losses.
A single step income statement lumps all revenues together and subtracts all
expenses to calculate net income. A multiple-step presents subtotals that highlight
key performance measures. Its categories include:
Sales or revenues
- Cost of goods sold (COGS) (Product costs of items sold)
= Gross profit
- Selling and Administrative expenses (also called operating expenses)
= Operating income or earnings before interest and taxes (EBIT)
+ Other income - other expenses + gains - losses
= Earnings before taxes (EBT)
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)
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.
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.
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)
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.
Fin Statement Users: 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.
Fin Statement Users: Company Management -
✔️ Managers use financial accounting data to formulate company goals, to compute
bonuses for employees, and to illuminate company weaknesses.
Fin Statement Users: Suppliers and Customers -
✔️ Suppliers, customers, and employees use financial statements to tell them about
the long-run prospects of a company.
Fin Statement Users: 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.
,Fin Statement Users: 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.
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)
Fin Statement Users: Politicians -
✔️ Politicians use financial statement data to bolster political and regulatory
positions for and against companies.
Acct Rules: 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)
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)
Acct Org: 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)
Acct Org: Public Company Accounting Oversight Board (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.
Current Trends changing 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
Current Trends changing Accounting: 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)
components of a balance sheet -
✔️ Balance Sheet are Assets, Liabilities, and Equity. Both assets and liabilities are
further separated into current and long term based on whether the asset is expected
to be consumed or the liability paid within a year. Assets expected to be consumed
and liabilities expected to be paid within a year are current and those that will be
consumed or paid after a year are long-term.
Equity is separated into paid in capital (also referred to as capital stock) and retained
earnings. Paid in capital is created when an owner buys stock from the firm.
Retained earnings are the accumulated earnings of the firm (i.e., net income over
time) that have not been paid back in dividends. Paid in capital also is referred to as
contributed capital while retained earnings is earned capital.
components of the income statement -
✔️ Income Statement describes a company's financial performance for a period of
time. A company's expenses are subtracted from its revenues and gains and losses
are also factored in computing net income. Net income helps explain the change in
retained earnings between two Balance Sheet dates, along with dividends and
unrealized gains and losses.
A single step income statement lumps all revenues together and subtracts all
expenses to calculate net income. A multiple-step presents subtotals that highlight
key performance measures. Its categories include:
Sales or revenues
- Cost of goods sold (COGS) (Product costs of items sold)
= Gross profit
- Selling and Administrative expenses (also called operating expenses)
= Operating income or earnings before interest and taxes (EBIT)
+ Other income - other expenses + gains - losses
= Earnings before taxes (EBT)
