ACCOUNTING FOR DECISION MAKERS (C213)
EXAM NOTES LATEST UPDATED Western
Governors University
,Topic 1: The Nature and Purpose of Financial Accounting ............................................................................ 4
1.1 What is Accounting and Why Does it Exist? ........................................................................................ 4
1.2 Financial Statements ........................................................................................................................... 4
1.3 Use Uses Financial Accounting Information? ...................................................................................... 5
1.4 The Need for Financial Accounting Standards ............................................................................... 5
1.5 Other Important Accounting-Related Organizations........................................................................... 6
1.6 Right Now Is An Exciting Time to Be Studying Accounting .................................................................. 7
Topic 2: Overview of the Financial Statements ............................................................................................. 8
2.1 The Need for Financial Statements ..................................................................................................... 8
2.2 Balance Sheet ...................................................................................................................................... 8
2.3 Income Statement ............................................................................................................................... 9
2.4 Statement of Cash Flows ................................................................................................................... 11
2.5 Notes to the Financial Statements .................................................................................................... 11
2.6 The External Audit ............................................................................................................................. 12
2.7 Other Accounting Concepts and Conventions ................................................................................... 12
Topic 3: The Balance Sheet.......................................................................................................................... 14
3.1 Individual Asset, Liability, and Equity accounts ................................................................................. 14
3.2 Form of the Balance Sheet ................................................................................................................ 17
3.3 Recognition and Valuation ................................................................................................................ 18
3.4 Introduction to Transaction Analysis ................................................................................................. 18
3.5 Asset and Financing Mix .................................................................................................................... 21
Topic 4: The Income Statement................................................................................................................... 22
4.1 Different Measures of Income.......................................................................................................... 22
4.2 Individual Income Statement Items .................................................................................................. 22
4.3 Format of the Income Statement ...................................................................................................... 24
4.4 Revenue Recognition and Matching.................................................................................................. 24
4.5 Transaction Analysis .......................................................................................................................... 24
4.6 Forecasting the Future ...................................................................................................................... 24
Topic 5: The Statement of Cash Flows......................................................................................................... 25
5.1 What is the Purpose of a Statement of Cash Flows?......................................................................... 25
5.2 What Information is Reported in the Statement of Cash Flows? ...................................................... 25
, 5.3 Preparing a Statement of Cash Flows ................................................................................................ 27
5.4 Analyzing the Other Primary Statements to Prepare a Statement of Cash Flows ............................ 27
5.5 Using Cash Flow Information to Forecast Future Financial Position ................................................. 27
Topic 6: Introduction to Financial Statement Analysis ................................................................................ 28
6.1 The Need for Financial Statement Analysis ...................................................................................... 28
6.2 Widely Used Financial Ratios............................................................................................................. 28
6.3 Common-Size Financial Statements .................................................................................................. 28
6.4 DuPont Framework ........................................................................................................................... 28
6.5 Cash Flow Ratios ................................................................................................................................ 29
6.6 Potential Pitfalls................................................................................................................................. 29
Topic 7: Cash Budgeting .............................................................................................................................. 30
7.1 Budgeting Cash Receipts .................................................................................................................. 30
7.2 Budgeting Cash Outflows ................................................................................................................. 30
Topic 8: Internal Controls – Ensuring the Integrity of Financial Information .............................................. 31
8.1 The Types of Problems That Can Occur ............................................................................................. 31
8.2 Safeguards Designed to Minimize Problems ..................................................................................... 31
8.3 Reasons for Earnings Management ................................................................................................... 32
8.4 The Sarbanes-Oxley Act..................................................................................................................... 32
8.5 The Role of Auditors in the Accounting Process................................................................................ 32
8.6 The Securities and Exchange Commission ......................................................................................... 33
Topic 9: Management Accounting and Cost Concepts ................................................................................ 34
9.1 Management as a Competitive Tool.................................................................................................. 34
9.2 Management Accounting and Financial Accounting ......................................................................... 34
9.3 Managerial Accounting Terminology................................................................................................. 34
9.4 The Role of Ethics in Management Accounting ................................................................................. 35
Topic 10: Activity-Based Costing ................................................................................................................. 37
10.1 Activity-Based Costing (ABC) ........................................................................................................... 37
10.2 Overhead Cost Activities ................................................................................................................. 37
10.3 Cost Drivers ..................................................................................................................................... 38
10.4 Assigned Overhead to Production Using ABC Data ......................................................................... 38
10.5 Making Decisions Using ABC Data ................................................................................................... 38
Topic 11: Cost Behavior and Decisions Using C-V-P Analysis ...................................................................... 39
11.1 Understanding Why C-V-P Analysis is Important ............................................................................ 39
2
, 11.2 Basic Cost Behavior Pattern ............................................................................................................ 39
11.3 Analysis of Mixed Costs ................................................................................................................... 39
11.4 Methods of C-V-P Analysis .............................................................................................................. 39
11.5 Using Graphs to “See” C-V-P Relationships ..................................................................................... 40
11.6 Sales Mix.......................................................................................................................................... 40
11.7 Cost Structure and Operating Leverages ......................................................................................... 40
3
EXAM NOTES LATEST UPDATED Western
Governors University
,Topic 1: The Nature and Purpose of Financial Accounting ............................................................................ 4
1.1 What is Accounting and Why Does it Exist? ........................................................................................ 4
1.2 Financial Statements ........................................................................................................................... 4
1.3 Use Uses Financial Accounting Information? ...................................................................................... 5
1.4 The Need for Financial Accounting Standards ............................................................................... 5
1.5 Other Important Accounting-Related Organizations........................................................................... 6
1.6 Right Now Is An Exciting Time to Be Studying Accounting .................................................................. 7
Topic 2: Overview of the Financial Statements ............................................................................................. 8
2.1 The Need for Financial Statements ..................................................................................................... 8
2.2 Balance Sheet ...................................................................................................................................... 8
2.3 Income Statement ............................................................................................................................... 9
2.4 Statement of Cash Flows ................................................................................................................... 11
2.5 Notes to the Financial Statements .................................................................................................... 11
2.6 The External Audit ............................................................................................................................. 12
2.7 Other Accounting Concepts and Conventions ................................................................................... 12
Topic 3: The Balance Sheet.......................................................................................................................... 14
3.1 Individual Asset, Liability, and Equity accounts ................................................................................. 14
3.2 Form of the Balance Sheet ................................................................................................................ 17
3.3 Recognition and Valuation ................................................................................................................ 18
3.4 Introduction to Transaction Analysis ................................................................................................. 18
3.5 Asset and Financing Mix .................................................................................................................... 21
Topic 4: The Income Statement................................................................................................................... 22
4.1 Different Measures of Income.......................................................................................................... 22
4.2 Individual Income Statement Items .................................................................................................. 22
4.3 Format of the Income Statement ...................................................................................................... 24
4.4 Revenue Recognition and Matching.................................................................................................. 24
4.5 Transaction Analysis .......................................................................................................................... 24
4.6 Forecasting the Future ...................................................................................................................... 24
Topic 5: The Statement of Cash Flows......................................................................................................... 25
5.1 What is the Purpose of a Statement of Cash Flows?......................................................................... 25
5.2 What Information is Reported in the Statement of Cash Flows? ...................................................... 25
, 5.3 Preparing a Statement of Cash Flows ................................................................................................ 27
5.4 Analyzing the Other Primary Statements to Prepare a Statement of Cash Flows ............................ 27
5.5 Using Cash Flow Information to Forecast Future Financial Position ................................................. 27
Topic 6: Introduction to Financial Statement Analysis ................................................................................ 28
6.1 The Need for Financial Statement Analysis ...................................................................................... 28
6.2 Widely Used Financial Ratios............................................................................................................. 28
6.3 Common-Size Financial Statements .................................................................................................. 28
6.4 DuPont Framework ........................................................................................................................... 28
6.5 Cash Flow Ratios ................................................................................................................................ 29
6.6 Potential Pitfalls................................................................................................................................. 29
Topic 7: Cash Budgeting .............................................................................................................................. 30
7.1 Budgeting Cash Receipts .................................................................................................................. 30
7.2 Budgeting Cash Outflows ................................................................................................................. 30
Topic 8: Internal Controls – Ensuring the Integrity of Financial Information .............................................. 31
8.1 The Types of Problems That Can Occur ............................................................................................. 31
8.2 Safeguards Designed to Minimize Problems ..................................................................................... 31
8.3 Reasons for Earnings Management ................................................................................................... 32
8.4 The Sarbanes-Oxley Act..................................................................................................................... 32
8.5 The Role of Auditors in the Accounting Process................................................................................ 32
8.6 The Securities and Exchange Commission ......................................................................................... 33
Topic 9: Management Accounting and Cost Concepts ................................................................................ 34
9.1 Management as a Competitive Tool.................................................................................................. 34
9.2 Management Accounting and Financial Accounting ......................................................................... 34
9.3 Managerial Accounting Terminology................................................................................................. 34
9.4 The Role of Ethics in Management Accounting ................................................................................. 35
Topic 10: Activity-Based Costing ................................................................................................................. 37
10.1 Activity-Based Costing (ABC) ........................................................................................................... 37
10.2 Overhead Cost Activities ................................................................................................................. 37
10.3 Cost Drivers ..................................................................................................................................... 38
10.4 Assigned Overhead to Production Using ABC Data ......................................................................... 38
10.5 Making Decisions Using ABC Data ................................................................................................... 38
Topic 11: Cost Behavior and Decisions Using C-V-P Analysis ...................................................................... 39
11.1 Understanding Why C-V-P Analysis is Important ............................................................................ 39
2
, 11.2 Basic Cost Behavior Pattern ............................................................................................................ 39
11.3 Analysis of Mixed Costs ................................................................................................................... 39
11.4 Methods of C-V-P Analysis .............................................................................................................. 39
11.5 Using Graphs to “See” C-V-P Relationships ..................................................................................... 40
11.6 Sales Mix.......................................................................................................................................... 40
11.7 Cost Structure and Operating Leverages ......................................................................................... 40
3
