WGU D196: Principals of Managerial and Financial Accounting
Study guide
UNIT2:THE ROLE AND PURPOSE OF ACCOUNTING
MODULE1: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 of ten impact real-world economic decisions.
Accountants have a moral and economic incentive to be ethical and to conduct
themselves ethically .Accountants are the score keepers, 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).
,Income Statement:reports the amount of net income earned by accompany during a
period.REVENUE–EXPENSES=NETINCOME
Statement of Cash Flows: reports the amount of cash collected and paid out by accompany
in the following three types of activities: operating investing ,and financing.
Financial Accounting Standards Board (FASB):anon-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.I t 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, there by 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:
NOTES
Arm’s Length Transaction: transaction in which a buyer and seller with equal bargaining power
act independently to get the best possible deal.
• Revenues INCREASE Owner’s Equity and Expenses and Dividends DECREASE Owner’s
Equity
• The accounting equation must ALWAYS balance after a transaction has been accounted
for.
• REVENUES–EXPENSES=NET INCOME
• Net Income:is a major source of change in owner’s equity from one accounting
period to the next .Revenues and expenses, then may be thought of as
temporary sub divisions of owner’s equity.
• Dividends: reflect payments to the owners. A transaction involving dividends
paid reduces owner’s equity as it is the account that shows distributions of net
income (earnings) o owners.
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UNIT3: FINANCIAL STATEMENTS20%
MODUEL3 :FINANCIAL STATEMENTS OVERVIEW
1. What are the four financial statements covered in this module? Define and explain
he purpose and components of each.
1. BalanceSheet: summary of financial position of a company as of right now.
Reports the resources of a company (assets),company’s obligations
(liabilities),and the difference between what is owned(assets)and what is
owed(liabilities),called owner’s equity.
2. Income Statement: Used to assess a company’s profitability and the
accountant’s best effort at measuring the economic performance of a
company (How much did the company make last
month,quarter,year??).Reports the amount of net income earned by a
company during a period, with annual and quarterly income statements
being most common.
3. Statement of Cash Flows:represents the accountant’s efforts at showing the
change in cash during a period of time.Reports the amount of cash collected
and paid out by accompany in operating ,investing,and financing activities.
Same time period as the income statement,with annual and quarterly being
, the most common.
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