D196: PRINCIPALS OF MANAGERIAL AND
FINANCIALACCOUNTING.QUESTIONS AND 100%
C0RRECT ANSWERS WITH RATIONALES.
STUDY GUIDE
UNIT 2: THE ROLE AND PURPOSE OF ACCOUNTING 15%
MODULE 1: ACCOUNTING INFORMATION
• What is the role and purpose of accounting?
Accumulate and report on financial information about performance,
financialposition, and cash flow of a business. Used to reach decisions
about how to manage the business, invest in it, or lend money to it.
• 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
evaluatethe 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.
• 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 accountingprinciples” (GAAP), international business, and
ethical considerations.
• 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 theymust 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
differencebetween what is owned (assets) and what is owed (liabilities).
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 bya company in the following three types of activities: operating,
investing, and financing.
Financial Accounting Standards Board (FASB): a non-government with
nolegal authority agency in the U.S. that sets the accounting standards
for publiclylisted 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
• What is the Accounting Cycle?
The four steps of the accounting cycle are:
• Analyze Transactions
• Record the effects of the transactions
• Summarize the effects of transactions
• Prepare reports
, The purpose of the accounting cycle is to help you see how the
accountingprocess eventually turn from transactions to financial
statements, thereby making financial data into useful information
for decision-making by managers.
• What is the Accounting
Equation? ASSETS =
LIABILITIES + EQUITY
Think ALE
Expanded Accounting Equation:
ASSETS=LIABILITIES + COMMON STOCK – DIVIDENDS + REVENUES –
EXPENSES
NOTES
Arm’s Length Transaction: transaction in which a buyer and seller with
equalbargaining power act independently to get the best possible deal.
• Revenues INCREASE Owner’s Equity and Expenses and Dividends
DECREASEOwner’s Equity
• The accounting equation must ALWAYS balance after a transaction
has beenaccounted 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 subdivisions
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 showsdistributions of net income (earnings) to
owners.
--------------------------------------------------------------------------------------------
----
UNIT 3: FINANCIAL STATEMENTS 20%
MODUEL 3: FINANCIAL STATEMENTS OVERVIEW
, • What are the four financial statements covered in this module?
Define andexplain the purpose and components of each.
• Balance Sheet: summary of financial position of a
company as of right now. Reports the resources of a
company (assets), company’sobligations (liabilities), and
the difference between what is owned (assets) and what
is owed (liabilities), called owner’s equity.
• Income Statement: Used to assess a company’s
profitability andthe accountant’s best effort at
measuring the economic performance of a company
(How much did the company make lastmonth, quarter,
year??). Reports the amount of net income earnedby a
company during a period, with annual and quarterly
income statements being most common.
• Statement of Cash Flows: represents the accountant’s
efforts atshowing the change in cash during a period of
time. Reports the amount of cash collected and paid out
by a company in operating, investing, and financing
activities. Same time period as the incomestatement,
with annual and quarterly being the most common.
• Statement of Retained Earnings: identifies the changes in
accumulated investments by owners and earnings or
profits since day one. Displays changes in retained
earnings from one accountingperiod to the next. Portrays
the accumulated profits or losses of a company at a point
in time.
• What is the importance of Notes to the Financial Statements
and what isincluded in these Notes?
They are critical to be able to properly interpret the information
contained inthe financial statements. The notes contain such
information as the assumptions made in computing certain numbers.
Before you can evaluate the number, you need to evaluate the
assumptions made in computing that number.
FINANCIALACCOUNTING.QUESTIONS AND 100%
C0RRECT ANSWERS WITH RATIONALES.
STUDY GUIDE
UNIT 2: THE ROLE AND PURPOSE OF ACCOUNTING 15%
MODULE 1: ACCOUNTING INFORMATION
• What is the role and purpose of accounting?
Accumulate and report on financial information about performance,
financialposition, and cash flow of a business. Used to reach decisions
about how to manage the business, invest in it, or lend money to it.
• 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
evaluatethe 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.
• 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 accountingprinciples” (GAAP), international business, and
ethical considerations.
• 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 theymust 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
differencebetween what is owned (assets) and what is owed (liabilities).
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 bya company in the following three types of activities: operating,
investing, and financing.
Financial Accounting Standards Board (FASB): a non-government with
nolegal authority agency in the U.S. that sets the accounting standards
for publiclylisted 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
• What is the Accounting Cycle?
The four steps of the accounting cycle are:
• Analyze Transactions
• Record the effects of the transactions
• Summarize the effects of transactions
• Prepare reports
, The purpose of the accounting cycle is to help you see how the
accountingprocess eventually turn from transactions to financial
statements, thereby making financial data into useful information
for decision-making by managers.
• What is the Accounting
Equation? ASSETS =
LIABILITIES + EQUITY
Think ALE
Expanded Accounting Equation:
ASSETS=LIABILITIES + COMMON STOCK – DIVIDENDS + REVENUES –
EXPENSES
NOTES
Arm’s Length Transaction: transaction in which a buyer and seller with
equalbargaining power act independently to get the best possible deal.
• Revenues INCREASE Owner’s Equity and Expenses and Dividends
DECREASEOwner’s Equity
• The accounting equation must ALWAYS balance after a transaction
has beenaccounted 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 subdivisions
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 showsdistributions of net income (earnings) to
owners.
--------------------------------------------------------------------------------------------
----
UNIT 3: FINANCIAL STATEMENTS 20%
MODUEL 3: FINANCIAL STATEMENTS OVERVIEW
, • What are the four financial statements covered in this module?
Define andexplain the purpose and components of each.
• Balance Sheet: summary of financial position of a
company as of right now. Reports the resources of a
company (assets), company’sobligations (liabilities), and
the difference between what is owned (assets) and what
is owed (liabilities), called owner’s equity.
• Income Statement: Used to assess a company’s
profitability andthe accountant’s best effort at
measuring the economic performance of a company
(How much did the company make lastmonth, quarter,
year??). Reports the amount of net income earnedby a
company during a period, with annual and quarterly
income statements being most common.
• Statement of Cash Flows: represents the accountant’s
efforts atshowing the change in cash during a period of
time. Reports the amount of cash collected and paid out
by a company in operating, investing, and financing
activities. Same time period as the incomestatement,
with annual and quarterly being the most common.
• Statement of Retained Earnings: identifies the changes in
accumulated investments by owners and earnings or
profits since day one. Displays changes in retained
earnings from one accountingperiod to the next. Portrays
the accumulated profits or losses of a company at a point
in time.
• What is the importance of Notes to the Financial Statements
and what isincluded in these Notes?
They are critical to be able to properly interpret the information
contained inthe financial statements. The notes contain such
information as the assumptions made in computing certain numbers.
Before you can evaluate the number, you need to evaluate the
assumptions made in computing that number.
