Principles of Financial Accounting (WGU)

What is the fourth step in the accounting cycle?

Prepare reports

The second step in the financial accounting cycle?

Record the effects of transactions

What is the second step in the financial accounting cycle?

Record the effects of transactions

The amount of earnings that are reinvested in the company are called _____.

Retained Earnings

What are sales? Asset Liability Equity Revenue Expense Dividend

Revenue

What is fee income? Asset Liability Equity Revenue Expense Dividend

Revenue

What is service revenue? Asset Liability Equity Revenue Expense Dividend

Revenue

____ is an increase in a company's resources through normal business transaction; _____ is a decrease in a company's resources through normal business transactions.

Revenue, Expense

What is the formula to determine net income?

Revenues - expenses = net income

What is the US organization that monitors the financial accounting disclosures of companies (both U.S. and foreign) whose stocks trade on U.S. stock exchanges?

SEC - Securities and Exchange Commission

This US government agency is charged with regulating financial markets and ensuring that the financial information provided by publicly traded companies follows certain rules and that this information is readily available to all.

SEC Securities and Exchange Commission

How do you calculate operating income?

Sales - COGS - operating expenses = operating income

How do you calculate gross profit?

Sales - Cogs = gross profit

What are the three functions of an accounting system?

Analysis, Evaluation, Bookkeeping

What is the first step in the financial accounting cycle?

Analyze transactions

The earnings that are paid to shareholders as a return on their investment. These earnings are not retained in the business.

Dividends

What are retained earnings? Asset Liability Equity Revenue Expense Dividend

Equity

What is capital or common stock? Asset Liability Equity Revenue Expense Dividend

Equity

____ is equal to total assets minus total liabilities and represents the book value of the owners' assets after liability obligations have been satisfied; stems from direct owner investment and past profits retained in the business.

Equity

The US organization that sets accounting standards for publicly listed companies.

FASB - Financial Accounting Standards Board

True or False: if a company has retained earning, the company has cash.

False

Activities surrounding acquiring the capital needed to purchase the company's assets; ex. getting cash from loans, repaying loans, receiving invested cash from owners, paying dividends, are known as _____.

Financing activities

How do you calculate Earnings (Loss) per Share?

Net income / outstanding number of shares of stock = earnings (Loss) per share

If revenues exceed expenses, the result is called _____. If expenses exceed revenues, the difference is called _____.

Net income, net loss

How is net income calculated?

operating income - interest expense - tax = net income

Cash inflows are also known as _____ and cash outflows are also known as _____.

receipts, payments

Annual filing with the SEC. Companies are required to fill out form with the SEC within 60 days of the end of its fiscal year.

10-K

Quarterly filing with the SEC. Companies are required to fill out this form quarterly.

10-Q

What is an income statement? a) a report of the revenues and expenses of a company during a period b) a report of the operating, investing, and financing cash flows of a company during a period c) a report of the total of the balances of all of a company's bank accounts d) a report of the assets, liabilities, and equity of a company as of a point in time

A. A report of the revenues and expenses of a company during a period.

What is a gain? a) making money from an activity outside the normal activities of a business b) making money from an activity that is part of the normal activities of a business c) making money from an excess of sales over COGS d) making money from an excess of total revenues over total expenses

A. Making money from an activity outside the normal activities of a business.

What is the role of the GASB in setting accounting standards? a) the GASB is a private-sector organization that establishes accounting and financial reporting standards for the US state and local governments. b) the GASB establishes accounting and reporting standards together with the IRS. c) The GASB establishes accounting and financial reporting standards together with the IASB. d) the GASB establishes accounting and reporting standards together with the SEC.

A. The GASB is a private-sector organization that establishes accounting and financial reporting standards for the US state and local governments.

Your boss approaches you with a concerning letter from the IRS and asks you to explain the role of the IRS in regulating accounting standards. Based on the role of the IRS, what could be the problem detailed in the letter? a) the company has not filed its taxes in accordance with the law. b) the company's accounting practices are not up to international standards. c) the company has not complied with certification requirements for its accounting department. d) the company's accounting practices are not up to state financial accounting standards.

A. The company has not filed its taxes in accordance with the law.

A new product line manager approaches the accounting department in order to understand the past performance of the product line he has been asked to manage in the future. Which role of accounting involves obtaining and using financial information to determine the financial health and performance of a business or product line? a) evaluation b) bookkeeping c) analysis d) decision-making

A. evaluation

What is the Securities and Exchange Commission (SEC)? a) the US government agency charged with regulating financial markets and ensuring the availability of reliable financial information. b) the national association of accounting professionals in the US. c) the US government agency charged with interpreting and enforcing income tax rules and regulations. d) the international body based in London that is responsible for establishing international accounting standards.

A. the US government agency charged with regulating financial markets and ensuring the availability of reliable financial information.

The language of business.

Accounting

How the financial statements tie together is also called _____.

Articulation

What are accounts receivable? Asset Liability Equity Revenue Expense Dividend

Asset

What are buildings? Asset Liability Equity Revenue Expense Dividend

Asset

What are pre-paid expenses? Asset Liability Equity Revenue Expense Dividend

Asset

What is Cash? Asset (A) Liability (L) Equity (E) Revenue (R) Expense (X) Dividend (D)

Asset

What is inventory? Asset Liability Equity Revenue Expense Dividend

Asset

What are patents? Asset Liability Equity Revenue Expense Dividend

Asset (intangible)

What is the accounting equation?

Assets = Liabilities + Owner's Equity

What is the basic accounting equation?

Assets = Liabilities + Owner's equity (ALE)

The COA (Chart of Accounts) is typically organized in what order?

Assets, Liabilities, Equity, Revenues, Expenses

Which statement best characterizes the elements and purposes of a statement of retained earnings? a) a statement of retained earnings portrays the results of operations of a company over a period of time. b) a statement of retained earnings portrays the accumulated profits or losses of a company at a point in time. c) a statement of retained earnings portrays the results of operations of a company at a point in time. d) a statement of retained earnings portrays the financial condition of a company over a period of time.

B. A statement of retained earnings portrays the accumulated profits or losses of a company at a point in time.

Which statement describes the role of ethics in accounting? a) ethics is not as important in accounting as it is in other areas of business. b) accountants have a moral incentive to conduct themselves ethically c) accounting decisions do not impact real-world economic decisions d) accountants are rarely presented with ethical dilemmas in their daily work

B. Accountants have a moral incentive to conduct themselves ethically.

What is owners' equity? a) an obligation to pay cash, transfer other assets, or provide services to another party. b) the residual amount representing the net assets available to another party after all obligation have been satisfied. c) the sum of operating, investing, and financing cash flows generated by another party. d) an economic resource that is owned or controlled by another party.

B. The residual amount representing the net assets available to another party after all obligations have been satisfied.

You read in the newspaper that a local company you are familiar with has been found guilty in court of publishing financial statements that are false and misleading to users of those financial statements. In this situation, what could the American Institute of Certified Public Accountants (AICPA) do in response to the accountants who were found guilty of unethical conduct in accounting practices? a) report the business to the FASB b) implement professional sanctions c) enforce legal punishments d) cover up the unethical conduct with flattering news reports

B. implement professional sanctions

What is the one simple rule that always applies to the accounting equation? a) assets + liabilities = owners' equity b) the accounting equation must always remain in balance after recording a transaction c) assets = revenues - expenses d) both internal and external transactions must be recorded using the accounting equation

B. the accounting equation must always remain in balance after recording a transaction

Shows the financial position of an organization's assets, liabilities, and equity at a specific time.

Balance Sheet

This is a report of the resources of a company (assets), the company's obligations (liabilities), and the difference between what is owned (assets) and what is owed (labilities), called owners' equity.

Balance Sheet

What are the 3 primary financial statements?

Balance Sheet, Income Statement, Statement of Cash Flows

What is the formula for retained earnings?

Beginning retained earnings + net income (earnings) for the period- dividends paid during the period = Ending retained earnings.

This is usually less than the company's market value and is measured by market price per share times the number of shares of stock.

Book Value

Which statement best characterizes the elements of purposes of a balance sheet? a) a balance sheet portrays the financial condition of a company over a period of time. b) a balance sheet portrays the results of operations of a company at a point in time. c) a balance sheet portrays the financial condition of a company at a point in time d) a balance sheet portrays the results of the operations of a company over a period of time.

C. A balance sheet portrays the financial condition of a company at a point in time.

How often is the form 10-K filed? a) monthly b) weekly c) annually d) quarterly

C. Annually

What infomraiton should be included on the balance sheet? a) financing cash flows b) income and expenses c) assets and liabilities d) operating cash flows

C. Assets and liabilities

Which resource or tool is used to identify unique companies in the SEC's 10-K filing database? a) Code of Federal Regulations b) EDGAR c) Central Index Key (CIK) d) Securities Exchange Act

C. Central Index Key (CIK)

Your company purchases new equipment for cash. Which accounts are increased and decreased as a result of this transaction? a) equipment increases and inventory decreases b) cash increases and equipment decreases c) equipment increases and cash decreases d) accounts payable increases and equipment decreases

C. Equipment increases and cash decreases

Which statement below describes why you should study accounting? a) expenses increase owners' equity b) revenues decrease owner's equity c) revenues minus expenses equals net income, which is part of owner's equity d) expenses minus revenues equals net income, which is part of owner's equity

C. Revenues minus expenses equals net income, which is part of owner's equity

Accounting plays a vital role in the decision-making process. Which action is the first step in the decision-making process? a) guarantee a good outcome b) gather information c) identify the issue d) identify the alternatives

C. identify the issues

What group of people make up the FASB? a) financial accounting specialists appointed by the US Congress b) Senior SEC staff members c) people from a variety of business-related backgrounds d) Senior IRS staff members

C. people from a variety of business -related backgrounds

Name 2 common sources of owners' equity.

Capital Stock Retained Earnings

What is the formula for equity?

Capital stock + retained earnings = equity

A balance sheet that distinguishes between current and long-term assets is called _____.

Classified Balance Sheet

Which event is an example of an internal transaction? a) a company buys inventory from a supplier b) a company borrows money from a bank c) a company sells a product to a customer d) a company hires a new employee

D. A company hires a new employee

Which account is an example of an asset? a) accounts payable b) unearned revenue c) retained earnings d) accounts receivable

D. Accounts receivable

Anika is considering investing in a tech company that is known for developing smart home appliances. Before investing, Anika first wants to ensure that the company's past financial performance has been satisfactory and that the company manages its cash flows well. What type of accounting information would provide this evidence for Anika? a) corporate budget b) cost analysis c) bank statements d) financial reports

D. Financial reports

Why does the balance sheet not reflect the current value or worth of a company? a) SEC regulation require recorded balance sheet values to be greater than the current value or worth of a company. b) the amount of cash is not reported in the balance sheet. c) SEC regulations do not require most publicly traded companies to use the accounting equation. d) Many assets are recorded at cost, and some economic assets are not recorded at all.

D. Many assets are recorded at cost and some economic assets are not recorded at all.

A transaction involving the payment of dividends to the owners reduces which part of the accounting equation? a) assets b) expenses c) revenues d) owners' equity

D. Owners' equity

How often is the Form 10-Q filed? a) monthly b) weekly c) annually d) quarterly

D. Quarterly

In what way do accountants have an economic incentive to conduct themselves ethically? a) most computerized accounting systems recognize unethical accounting procedures. b) it is not possible for an unethical accountant to become a certified public accountant. c) it is not possible for an unethical accountant to rise to a top management position in a company. d) the value of the information produced by accountants is related to the confidence that users have in the reliability of that information.

D. The value of the information produced by accountants is related to the confidence that users have in the reliability of that information.

How is it possible for an accountant to intentionally deceive financial statement users and yet still technically be in compliance with generally accepted accounting principles (GAAP)? a) an accountant can use a computerized accounting system to cover up deceptive practices b) there is conflict between FASB rules and the SEC rules c) the mismatch between the timing of the filing of tax returns and the deadlines for completion of the financial statements leaves room for dishonesty. d) there is flexibility inherent in the assumptions underlying the preparation of financial statements.

D. There is flexibility inherent in the assumptions underlying the preparation of financial statements.

What is the name of the account that shows the distribution of new income (earnings) to the owners of a business? a) liabilities b) inventory c) owners' equity d) dividents

D. dividends

What is the role of the IASB in regulating accounting standards? a) work under the direction of the SEC to establish financial accounting standards b) work as a subcommittee of the American Institute of Certified Public Accountants (AICPA) to regulate accounting instruction. c) use legal authority to establish financial accounting standards for US companies d) establish international accounting standards

D. establish international accounting standards

Aliah Company just released its public accounting data for 20X9. Which user of accounting information will monitor this data to ensure that the company is providing sufficient information for investors? a) lenders b) customers c) company managers d) government agencies

D. government agencies

The money that a company needs to buy its land, pay its employees, and buy its supplies is called capital. What are the potential sources of capital for a business? a) gross business earnings, employees, and taxes b) employees, investors, and retained business earnings c) taxes investors, and retained business earnings d) investors, creditors, and retained business earnings

D. investors, creditors, and retained business earnings

One activity most businesses have in common is the acquisition of resources. Which example is an external transition where a business is acquiring a resource? a) transferring money in a company's budget from one department to another b) announcing the development of a new product c) announcing the closing of a manufacturing facility d) purchasing new equipment from a manufacturer

D. purchasing new equipment from a manufacturer

What is net income? a) the total amount of assets reported in the balance sheet. b) the amount of cash on hand at the end of the year c) the amount of assets consumed through business operations d) the amount by which revenues exceed expenses

D. the amount by which revenues exceed expenses

What are salaries expenses? Asset Liability Equity Revenue Expense Dividend

Expense

What is a maintenance expense? Asset Liability Equity Revenue Expense Dividend

Expense

What is utilities expense? Asset (A) Liability (L) Equity (E) Revenue (R) Expense (X) Dividend (D)

Expense

This form requires the following information: -products or services provided -risks to which the company is exposed, ex. interest rates, few suppliers -significant properties owned by the company - legal proceedings involving the company -discussion by management about the company's financial conditions and results - company's financial statements - other misc. items

Form 10-K

Revenue is a ___ concept, income is a ____ concept.

Gross, net

Shows the profitability of an organization by comparing revenues and expenses for a period of time.

Income Statement

This is a report of the amount of net income earned by a company during a period, with annual and quarterly being the most common.

Income Statement

Activities that are part of the company's day to day business; ex. collecting cash from customers, paying employees, buying inventory, are known as ______.

Operating activities

What are taxes payable? Asset Liability Equity Revenue Expense Dividend

Liability

What is a mortgage payable? Asset Liability Equity Revenue Expense Dividend

Liability

What is a notes payable? Asset (A) Liability (L) Equity (E) Revenue (R) Expense (X) Dividend (D)

Liability

What is accounts payable? Asset Liability Equity Revenue Expense Dividend

Liability

What is unearned revenue? Asset Liability Equity Revenue Expense Dividend

Liability (ex. pre-paid for a job that hasn't been completed, once you've completed the job it becomes revenue)

The price that would have to be paid to buy the same asset today. Example, land purchased 10 years ago is reported on the balance sheet at cost even though its current value may have increased dramatically.

Market Value

Shows the amount of cash inflows and outflows for an organization's operating, investing, and financing activities.

Statement of Cash Flows

This is a report of a company's cash inflows and outflows categorized into operating, investing, and financing activities.

Statement of Cash Flows

This represents the accountant's best efforts at showing the change in cash during a period of time. This reports the amount of cash collected and paid out by a company in operating, investing, and financing activities. The statement of cash flows is for the same period of time as the income statement, with annual and quarterly being the most common.

Statement of Cash Flows

_____ identifies the changes in accumulated investments by owners and earning or profits since day one.

Statement of Retained Earnings

Not one of the 3 primary financial statements, but important as it links the income statement and balance sheet together. This reports shows the accumulated profits or losses of a business since the business started.

Statement of Retained earnings

What is the third step in the financial accounting cycle?

Summarize the effects of the transactions