WGU C213 ACCOUNTING FOR DECISION
MAKERS FINAL EXAM STUDY GUIDE
QUESTIONS AND CORRECT ANSWERS 2024
COMPLETE CHAPTER 1-11
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)
MAKERS FINAL EXAM STUDY GUIDE
QUESTIONS AND CORRECT ANSWERS 2024
COMPLETE CHAPTER 1-11
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)
