WGU C213 Accounting for Decision Makers 2025-2026 Study Guide /
Verified Prep for PA & OA with Detailed Answers
Western Governors University
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)
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.
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.
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)
Fin Statement Users: 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.
Fin Statement Users: 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.
Fin Statement Users: Company Management
Managers use financial accounting data to formulate company goals, to compute bonuses for employees, and to
illuminate company weaknesses.
Fin Statement Users: Suppliers and Customers
Suppliers, customers, and employees use financial statements to tell them about the long-run prospects of a
company.
Fin Statement Users: 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.
Fin Statement Users: 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.
Fin Statement Users: 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)
Fin Statement Users: Politicians
Politicians use financial statement data to bolster political and regulatory positions for and against companies.
Acct Rules: 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)
Acct Rules: 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)
Acct Org: 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)
Acct Org: Public Company Accounting Oversight Board (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.
Current Trends changing 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
Current Trends changing Accounting: 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)
components of a balance sheet
Balance Sheet are Assets, Liabilities, and Equity. Both assets and liabilities are further separated into current
and long term based on whether the asset is expected to be consumed or the liability paid within a year. Assets
expected to be consumed and liabilities expected to be paid within a year are current and those that will be
consumed or paid after a year are long-term.
Equity is separated into paid in capital (also referred to as capital stock) and retained earnings. Paid in capital is
created when an owner buys stock from the firm. Retained earnings are the accumulated earnings of the firm
(i.e., net income over time) that have not been paid back in dividends. Paid in capital also is referred to as
contributed capital while retained earnings is earned capital.
components of the income statement
Income Statement describes a company's financial performance for a period of time. A company's expenses are
subtracted from its revenues and gains and losses are also factored in computing net income. Net income helps
explain the change in retained earnings between two Balance Sheet dates, along with dividends and unrealized
gains and losses.
A single step income statement lumps all revenues together and subtracts all expenses to calculate net income. A
multiple-step presents subtotals that highlight key performance measures. Its categories include:
Sales or revenues
- Cost of goods sold (COGS) (Product costs of items sold)
= Gross profit
- Selling and Administrative expenses (also called operating expenses)
Verified Prep for PA & OA with Detailed Answers
Western Governors University
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)
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.
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.
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)
Fin Statement Users: 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.
Fin Statement Users: 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.
Fin Statement Users: Company Management
Managers use financial accounting data to formulate company goals, to compute bonuses for employees, and to
illuminate company weaknesses.
Fin Statement Users: Suppliers and Customers
Suppliers, customers, and employees use financial statements to tell them about the long-run prospects of a
company.
Fin Statement Users: 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.
Fin Statement Users: 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.
Fin Statement Users: 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)
Fin Statement Users: Politicians
Politicians use financial statement data to bolster political and regulatory positions for and against companies.
Acct Rules: 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)
Acct Rules: 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)
Acct Org: 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)
Acct Org: Public Company Accounting Oversight Board (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.
Current Trends changing 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
Current Trends changing Accounting: 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)
components of a balance sheet
Balance Sheet are Assets, Liabilities, and Equity. Both assets and liabilities are further separated into current
and long term based on whether the asset is expected to be consumed or the liability paid within a year. Assets
expected to be consumed and liabilities expected to be paid within a year are current and those that will be
consumed or paid after a year are long-term.
Equity is separated into paid in capital (also referred to as capital stock) and retained earnings. Paid in capital is
created when an owner buys stock from the firm. Retained earnings are the accumulated earnings of the firm
(i.e., net income over time) that have not been paid back in dividends. Paid in capital also is referred to as
contributed capital while retained earnings is earned capital.
components of the income statement
Income Statement describes a company's financial performance for a period of time. A company's expenses are
subtracted from its revenues and gains and losses are also factored in computing net income. Net income helps
explain the change in retained earnings between two Balance Sheet dates, along with dividends and unrealized
gains and losses.
A single step income statement lumps all revenues together and subtracts all expenses to calculate net income. A
multiple-step presents subtotals that highlight key performance measures. Its categories include:
Sales or revenues
- Cost of goods sold (COGS) (Product costs of items sold)
= Gross profit
- Selling and Administrative expenses (also called operating expenses)
