Intermediate Accounting 1 (WGU) ACTUAL
QUESTIONS AND CORRECT ANSWERS
Characteristics of Accounting - CORRECT ANSWERS the identification, measurement,
and communication of financial information about economic entities to interested parties
Financial Accounting - CORRECT ANSWERS Preparation of finanical reports
Managerial Accounting - CORRECT ANSWERS using financial information to plan,
control, and evaluate a company's operations
Financial Statements - CORRECT ANSWERS 1. Balance Sheet
2. Income Statement
2. Statement of Retained Earnings (owner's equity)
4. Statement of Cash Flows
Financial Reports - CORRECT ANSWERS 1. President's Letter
2. Prospectuses
3. News Releases
4. Management Forecasts
5. Impact Statements (social or environmental)
Capital Allocation - CORRECT ANSWERS 1. Resources are limited
2. Effective process of capital allocation is critical to a healthy economy
3. Promotes productivity, encourages innovations, and provides an efficient and liquid market for
buying and selling securities
,Objective of Financial Reporting - CORRECT ANSWERS to provide financial
information about the reporting entity that is useful to present and potential equity investors,
lenders, and other creditors in decisions about providing resources to the entity
General-Purpose Financial Statements - CORRECT ANSWERS 1. provide financial
reporting information to a wide variety of users
2. most useful information
3. cost-effective
Equity Investors and Creditors - CORRECT ANSWERS 1. primary users for general
purpose financial statements
2. Statements used to determine ability to generate net cash flows and to understand
management's ability to protect and enhance assets
Entity Perspective - CORRECT ANSWERS companies viewed as separate and distinct
from their owners
Decision-Usefulness - CORRECT ANSWERS 1. Approach that requires that financial
reporting be useful to investors by helping them assess (1) the company's ability to generate net
cash inflows and (2) management's ability to protect and enhance the capital providers'
investments.
Accrual Basis of Accounting - CORRECT ANSWERS 1. the method of accounting that
recognizes revenue when it is earned and matches expenses to the revenues they helped produce
2. ability to generate favorable cash flows
Need to Develop Standards - CORRECT ANSWERS 1. Generally Accepted Accounting
Principles (GAAP)
, 2. allows for commonality of financial statements so they can be read from one company to
another
Generally Accepted - CORRECT ANSWERS 1. authoritative accounting rule-making
body established a principle of reporting in an area
OR
2. over time a given practice has been accepted as appropriate because of its universal uses or
application
Parties Involved in Standard Setting - CORRECT ANSWERS 1. Securities and Exchange
Commission (SEC)
2. American Institute of Certified Public Accountants (AICPA)
3. Financial Accounting Standards Board (FASB)
Securities and Exchange Commission (SEC) - CORRECT ANSWERS 1. develop and
standardize financial information presented to stockholders
2. relies on the Financial Accounting Standards Board (FASB)
American Institute of Certified Public Accountants (AICPA) - CORRECT ANSWERS 1.
created the Committee on Accounting Procedure (CAP) to address the issue of uniformity in
accounting practice (20 years)
2. CAP issued 51 Accounting Research Bulletins (ARBs) that narrowed the wide range of
alternative accounting practices in existence
3. created the Accounting Principles Board (APB) after CAP. Purpose was to advance the written
expression of accounting principles, determine appropriate practices, and to narrow the areas of
difference and inconsistency in practice. Pronouncements are the most authoritative
Accounting Principles Board (APB) - CORRECT ANSWERS 1. AICPA's sole authority
for public pronouncements on accounting principles
QUESTIONS AND CORRECT ANSWERS
Characteristics of Accounting - CORRECT ANSWERS the identification, measurement,
and communication of financial information about economic entities to interested parties
Financial Accounting - CORRECT ANSWERS Preparation of finanical reports
Managerial Accounting - CORRECT ANSWERS using financial information to plan,
control, and evaluate a company's operations
Financial Statements - CORRECT ANSWERS 1. Balance Sheet
2. Income Statement
2. Statement of Retained Earnings (owner's equity)
4. Statement of Cash Flows
Financial Reports - CORRECT ANSWERS 1. President's Letter
2. Prospectuses
3. News Releases
4. Management Forecasts
5. Impact Statements (social or environmental)
Capital Allocation - CORRECT ANSWERS 1. Resources are limited
2. Effective process of capital allocation is critical to a healthy economy
3. Promotes productivity, encourages innovations, and provides an efficient and liquid market for
buying and selling securities
,Objective of Financial Reporting - CORRECT ANSWERS to provide financial
information about the reporting entity that is useful to present and potential equity investors,
lenders, and other creditors in decisions about providing resources to the entity
General-Purpose Financial Statements - CORRECT ANSWERS 1. provide financial
reporting information to a wide variety of users
2. most useful information
3. cost-effective
Equity Investors and Creditors - CORRECT ANSWERS 1. primary users for general
purpose financial statements
2. Statements used to determine ability to generate net cash flows and to understand
management's ability to protect and enhance assets
Entity Perspective - CORRECT ANSWERS companies viewed as separate and distinct
from their owners
Decision-Usefulness - CORRECT ANSWERS 1. Approach that requires that financial
reporting be useful to investors by helping them assess (1) the company's ability to generate net
cash inflows and (2) management's ability to protect and enhance the capital providers'
investments.
Accrual Basis of Accounting - CORRECT ANSWERS 1. the method of accounting that
recognizes revenue when it is earned and matches expenses to the revenues they helped produce
2. ability to generate favorable cash flows
Need to Develop Standards - CORRECT ANSWERS 1. Generally Accepted Accounting
Principles (GAAP)
, 2. allows for commonality of financial statements so they can be read from one company to
another
Generally Accepted - CORRECT ANSWERS 1. authoritative accounting rule-making
body established a principle of reporting in an area
OR
2. over time a given practice has been accepted as appropriate because of its universal uses or
application
Parties Involved in Standard Setting - CORRECT ANSWERS 1. Securities and Exchange
Commission (SEC)
2. American Institute of Certified Public Accountants (AICPA)
3. Financial Accounting Standards Board (FASB)
Securities and Exchange Commission (SEC) - CORRECT ANSWERS 1. develop and
standardize financial information presented to stockholders
2. relies on the Financial Accounting Standards Board (FASB)
American Institute of Certified Public Accountants (AICPA) - CORRECT ANSWERS 1.
created the Committee on Accounting Procedure (CAP) to address the issue of uniformity in
accounting practice (20 years)
2. CAP issued 51 Accounting Research Bulletins (ARBs) that narrowed the wide range of
alternative accounting practices in existence
3. created the Accounting Principles Board (APB) after CAP. Purpose was to advance the written
expression of accounting principles, determine appropriate practices, and to narrow the areas of
difference and inconsistency in practice. Pronouncements are the most authoritative
Accounting Principles Board (APB) - CORRECT ANSWERS 1. AICPA's sole authority
for public pronouncements on accounting principles
