D196 Study Guide Answers & Notes
managerial and financial accounting
(Western Governors University)
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, D196: PRINCIPALS OF MANAGERIAL AND FINANCIAL
ACCOUNTING
STUDY GUIDE
UNIT 2: THE ROLE AND PURPOSE OF ACCOUNTING 15%
MODULE 1: ACCOUNTING INFORMATION
1. What is the role and purpose of accounting?
Accumulate and report on financial information about performance, financial
position, and cash flow of a business. Used to reach decisions about how to
manage the business, invest in it, or lend money to it.
2. Who uses accounting information and why?
Businesses use accounting to: analyze transactions, handle routine
bookkeeping tasks, and structure information so it can be used to evaluate
the performance and health of the business. Used by creditors, investors,
and both decisions makers inside and outside of organizations use it to:
allocate resources, evaluate performance, and determine a company’s
profitability.
3. What are the important influences on accounting?
Three particularly important factors that influence the environment in which
accounting operates are the development of “generally accepted accounting
principles” (GAAP), international business, and ethical considerations.
4. What is the role of ethics in accounting?
Maintaining high ethical standards is important in accounting because
accounting decisions often impact real-world economic decisions.
Accountants have a moral and economic incentive to be ethical and to
conduct themselves ethically. Accountants are the scorekeepers, so they
must remain unbiased.
NOTES
Managerial Accounting: is internal decision making such as product costs,
break even analysis, budgeting, performance evaluation, and outsource
production.
Financial Accounting: is external decision making such as investors and
creditors. Credit analysis estimate the value of the company.
Balance Sheet: reports the resources of a company (assets), the company’s
obligations (liabilities), and the owner’s equity, which represents the difference
between what is owned (assets) and what is owed (liabilities).
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, Income Statement: reports the amount of net income earned by a company
during a period. REVENUE – EXPENSES = NET INCOME
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.
Financial Accounting Standards Board (FASB): a non-government with no
legal authority agency in the U.S. that sets the accounting standards for publicly
listed companies.
Generally Accepted Accounting Principles (GAAP): rules governing financial
accounting. In the U.S., GAAP is set by a private, non-governmental group called
FASB and Worldwide GAAP is set by the International Accounting Standards Board
(IASB) which is based in London.
Governmental Accounting Standards Board (GASB): sets the accounting
and financial reporting standards for state and local governments following GAAP.
It is a private, non-governmental organization that seeks to improve accounting
practices and procedures.
International Accounting Standards Board (IASB): was formed in 1973 to
develop international accounting standards to attempt to harmonize conflicting
national standards.
MODULE 2: ACCOUNTING CYCLE
5. What is the Accounting Cycle?
The four steps of the accounting cycle are:
1. Analyze Transactions
2. Record the effects of the transactions
3. Summarize the effects of transactions
4. Prepare reports
The purpose of the accounting cycle is to help you see how the accounting
process eventually turn from transactions to financial statements, thereby
making financial data into useful information for decision-making by
managers.
6. What is the Accounting Equation?
ASSETS = LIABILITIES + EQUITY
Think ALE
Expanded Accounting Equation:
messages.downloaded_by
managerial and financial accounting
(Western Governors University)
messages.downloaded_by
, D196: PRINCIPALS OF MANAGERIAL AND FINANCIAL
ACCOUNTING
STUDY GUIDE
UNIT 2: THE ROLE AND PURPOSE OF ACCOUNTING 15%
MODULE 1: ACCOUNTING INFORMATION
1. What is the role and purpose of accounting?
Accumulate and report on financial information about performance, financial
position, and cash flow of a business. Used to reach decisions about how to
manage the business, invest in it, or lend money to it.
2. Who uses accounting information and why?
Businesses use accounting to: analyze transactions, handle routine
bookkeeping tasks, and structure information so it can be used to evaluate
the performance and health of the business. Used by creditors, investors,
and both decisions makers inside and outside of organizations use it to:
allocate resources, evaluate performance, and determine a company’s
profitability.
3. What are the important influences on accounting?
Three particularly important factors that influence the environment in which
accounting operates are the development of “generally accepted accounting
principles” (GAAP), international business, and ethical considerations.
4. What is the role of ethics in accounting?
Maintaining high ethical standards is important in accounting because
accounting decisions often impact real-world economic decisions.
Accountants have a moral and economic incentive to be ethical and to
conduct themselves ethically. Accountants are the scorekeepers, so they
must remain unbiased.
NOTES
Managerial Accounting: is internal decision making such as product costs,
break even analysis, budgeting, performance evaluation, and outsource
production.
Financial Accounting: is external decision making such as investors and
creditors. Credit analysis estimate the value of the company.
Balance Sheet: reports the resources of a company (assets), the company’s
obligations (liabilities), and the owner’s equity, which represents the difference
between what is owned (assets) and what is owed (liabilities).
messages.downloaded_by
, Income Statement: reports the amount of net income earned by a company
during a period. REVENUE – EXPENSES = NET INCOME
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.
Financial Accounting Standards Board (FASB): a non-government with no
legal authority agency in the U.S. that sets the accounting standards for publicly
listed companies.
Generally Accepted Accounting Principles (GAAP): rules governing financial
accounting. In the U.S., GAAP is set by a private, non-governmental group called
FASB and Worldwide GAAP is set by the International Accounting Standards Board
(IASB) which is based in London.
Governmental Accounting Standards Board (GASB): sets the accounting
and financial reporting standards for state and local governments following GAAP.
It is a private, non-governmental organization that seeks to improve accounting
practices and procedures.
International Accounting Standards Board (IASB): was formed in 1973 to
develop international accounting standards to attempt to harmonize conflicting
national standards.
MODULE 2: ACCOUNTING CYCLE
5. What is the Accounting Cycle?
The four steps of the accounting cycle are:
1. Analyze Transactions
2. Record the effects of the transactions
3. Summarize the effects of transactions
4. Prepare reports
The purpose of the accounting cycle is to help you see how the accounting
process eventually turn from transactions to financial statements, thereby
making financial data into useful information for decision-making by
managers.
6. What is the Accounting Equation?
ASSETS = LIABILITIES + EQUITY
Think ALE
Expanded Accounting Equation:
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