WGU C213 Questions and Answers with Complete Solutions

WGU C213 Questions and Answers with Complete Solutions Purpose of Accounting 1. Recording of the day-to-day financial activities 2. Used to evaluate the company's financial status. Bookkeeping Systematic quantitative record of an activity. Accounting System 1. Handle routine bookkeeping tasks. 2. Evaluate the performance and financial status of the business. Accounting Information Used to make decisions about the future Financial Accounting Used by external users. Managerial Accounting Accounting systems designed for internal users. Balance Sheet Reports a company's assets, liabilities, and owner's equity. Income Statement 1. Reports the amount of net income earned by a company during a period. 2. Reports gains and losses from activities outside a companies normal operations. Single-step Income Statement Groups the revenues and expenses, and reports the overall difference as net income. Multi-step Income Statement Emphasizes the presentation of gross profit and operating income. Net Income The excess of a company's revenues over its expenses. Revenues, Expenses, Gains, Losses Statement of Cash Flows Reports cash collected and paid out by a company. Operating, Investing, Financing Financial Accounting Standards Board Not Government, Private body established by the US business community, financial analysts, and practicing accountants, Has no legal power. Securities and Exchange Commission Regulates US stock exchanges Role of SEC Makes sure investors are provided with reliable information, Adds credibility, Requires certain reports, 10-Q & 10-K, from companies. Public Company Accounting Oversight Board Inspects the audit practices, Has statutory authority to investigate questionable audit practices, Can impose sanctions Trends of Accounting Information technology, integration of worldwide business, Increased scrutiny Constraints on Auditors (Sarbanes-Oxley) 1. Auditors are prohibited from providing nonaudit services to audit clients. 2. Audit partners must rotate every five years. 3. Auditors must report to the audit committee of the board of directors. Constraints on Management (Sarbanes-Oxley) 1. The CEO and the CFO must personally certify the reliability of the financial statements 2. Companies must have a code of ethics 3. Loans to company executives are prohibited 4. Audit committees must be strengthened Assets Probable future economic benefits obtained or controlled by a company as a result of past transactions or events. Liabilities 1. Probable future sacrifices of economic benefits arising from present obligations of a company to transfer assets. 2. Or provide services in the future as a result of past transaction or events. Owners' Equity The residual interest in the assets of a company that remains after deducting its liabilities. Revenues The amount of assets generated in the normal course of business. Expenses Are the amount of assets consumed in doing business. Revenue Recognition The accounting process used to determine when revenue should be reported in the income statement. Operating Activities Those activities that comprise the day-to-day operations of a business. Investing Activities The purchase and sale of long-term assets such as land and equipment. Financing Activities Those activities through which cash is obtained from, or repaid to, creditors and investors. Relevant Information Information that is provided on a timely basis and can be used to assess the past and to project the future for decision making. Reliable Information Information that represents what it is supposed to represent. Comparability Allows a company's financial statements to be analyzed in light of the company's own performance in prior years or other companies' performance. Conservatism The practice of recognizing all losses but not recognizing gains until they are certain. Articulation The idea that the three primary financial statements are interrelated. Purpose of Financial Statement Analysis 1. Can be us