WGU C214 COMPREHENSIVE QUESTIONS AND CORRECT
ANSWERS EXAM TEST UPDATE 2024
What's the difference between a long term asset and a short term asset?
Short term assets are expected to be converted to cash within one year, long term
assets are typically more valuable but less liquid (projected to keep for more than a
year)
What is Equity?
Amounts invested in the company by shareholders/investors. Happens when somebody
buys stock in your company.
What is reported on the Income Statement?
Revenues, Expenses and Income
(Income statement is the FIRST statement a company has to prepare)
What is reported on the Balance Sheet?
assets, liabilities, equity
Assets = Liability + Equity
What equation is the foundation for all of financial accounting?
Assets = Liability + Equity
What are liabilities?
Amounts owed by the company to others.
i.e. Accounts payable, salaries payable, income tax payable. If you see the word
"payable" it's a liability.
What are short term vs long term liabilities?
Short term liabilities are those debts that are paid off in one year such as accounts
payable, salaries payable and short term loans.
Long term liabilities are due in more than a year, such as long term loans, bonds, and
lease agreements. LTL are used to finance major investments such as purchasing
property, plant and equipment.
The goal of the corporation is to:
maximize stock price
What makes an efficient market?
Competitive market, liquidity, transparency
What is the relationship between risk and required return?
As risk increases, required return increases.
What are the 3 main financial statements?
Income statement, the Balance Sheet., and the statement of cash flows
Which financial statement reflects a POINT in time (not a period in time)
Balance sheet
What is Revenue?
Amount generated by sale of products and services
What is Expenses
Amount incurred to manufacture products
What is Income?
, The difference between Revenue and Expenses
What are Assets?
Items that are owned by the company
Land, building, equipment, machinery, supplies, inventory
What is the Revenue Recognition principle?
Revenue is recognized when product or service is delivered to the customer.
*The moment you deliver the product or service, you have earned the revenue and have
to report it in the income statement. You don't have to be paid by the customer to report
the revenue.
What is the expense recognition principle?
Expenses are recognized when expenses are incurred by the company.
*You don't have to have paid for it yet. You recognize it when it is incurred (employees
that work today, you owe them today's work and it's recognized as today's expense)
What is the accrual based accounting system?
It's the terminology that we use in financial accounting for revenue recognition and
expense recognition principle.
What is included in the income statement and NOT included in the statement of
Cash Flows?
Depreciation Expense
(the only expense for which cash will never be paid)
What is the Statement of Retained Earnings?
A company earns money/earnings every year. Some of those earnings are paid back to
the shareholders (dividends) and the rest is retained by the company to grow the
company and benefit the shareholders.
Net Income Equation if you know the sales revenue and the margin:
Sales * Net Margin
List and summarize the 4 financial statements:
Income Statement: Prepared for a period of time
Retained Earnings Statement: Prepared for a period of time
Balance Sheet: Prepared for a POINT in time
Statement of Cash Flows: Prepared for a period of time
Basic Equation for the Balance Sheet:
Equity = Assets - Liabilities OR
Assets = Liabilities + Equity
What is the statement of cash flows?
It shows the change in cash balance for a period of time.
What are the 3 types of cash flows?
CFO: Cash flow from Operations
CFI: Cash flow from Investing
CFF: Cash flow from Financing
What is increase in networking capital?
Change in current assets - change in current liabilities
List some current assets
Accounts receivable, Inventory, Prepaid Expenses
List some Current Liabilities
Accounts Payable, Salaries Payable, Accrued Expenses
ANSWERS EXAM TEST UPDATE 2024
What's the difference between a long term asset and a short term asset?
Short term assets are expected to be converted to cash within one year, long term
assets are typically more valuable but less liquid (projected to keep for more than a
year)
What is Equity?
Amounts invested in the company by shareholders/investors. Happens when somebody
buys stock in your company.
What is reported on the Income Statement?
Revenues, Expenses and Income
(Income statement is the FIRST statement a company has to prepare)
What is reported on the Balance Sheet?
assets, liabilities, equity
Assets = Liability + Equity
What equation is the foundation for all of financial accounting?
Assets = Liability + Equity
What are liabilities?
Amounts owed by the company to others.
i.e. Accounts payable, salaries payable, income tax payable. If you see the word
"payable" it's a liability.
What are short term vs long term liabilities?
Short term liabilities are those debts that are paid off in one year such as accounts
payable, salaries payable and short term loans.
Long term liabilities are due in more than a year, such as long term loans, bonds, and
lease agreements. LTL are used to finance major investments such as purchasing
property, plant and equipment.
The goal of the corporation is to:
maximize stock price
What makes an efficient market?
Competitive market, liquidity, transparency
What is the relationship between risk and required return?
As risk increases, required return increases.
What are the 3 main financial statements?
Income statement, the Balance Sheet., and the statement of cash flows
Which financial statement reflects a POINT in time (not a period in time)
Balance sheet
What is Revenue?
Amount generated by sale of products and services
What is Expenses
Amount incurred to manufacture products
What is Income?
, The difference between Revenue and Expenses
What are Assets?
Items that are owned by the company
Land, building, equipment, machinery, supplies, inventory
What is the Revenue Recognition principle?
Revenue is recognized when product or service is delivered to the customer.
*The moment you deliver the product or service, you have earned the revenue and have
to report it in the income statement. You don't have to be paid by the customer to report
the revenue.
What is the expense recognition principle?
Expenses are recognized when expenses are incurred by the company.
*You don't have to have paid for it yet. You recognize it when it is incurred (employees
that work today, you owe them today's work and it's recognized as today's expense)
What is the accrual based accounting system?
It's the terminology that we use in financial accounting for revenue recognition and
expense recognition principle.
What is included in the income statement and NOT included in the statement of
Cash Flows?
Depreciation Expense
(the only expense for which cash will never be paid)
What is the Statement of Retained Earnings?
A company earns money/earnings every year. Some of those earnings are paid back to
the shareholders (dividends) and the rest is retained by the company to grow the
company and benefit the shareholders.
Net Income Equation if you know the sales revenue and the margin:
Sales * Net Margin
List and summarize the 4 financial statements:
Income Statement: Prepared for a period of time
Retained Earnings Statement: Prepared for a period of time
Balance Sheet: Prepared for a POINT in time
Statement of Cash Flows: Prepared for a period of time
Basic Equation for the Balance Sheet:
Equity = Assets - Liabilities OR
Assets = Liabilities + Equity
What is the statement of cash flows?
It shows the change in cash balance for a period of time.
What are the 3 types of cash flows?
CFO: Cash flow from Operations
CFI: Cash flow from Investing
CFF: Cash flow from Financing
What is increase in networking capital?
Change in current assets - change in current liabilities
List some current assets
Accounts receivable, Inventory, Prepaid Expenses
List some Current Liabilities
Accounts Payable, Salaries Payable, Accrued Expenses
