Download Accounting Questions and Answers: Comprehensive Study Guide and more Exams Software Engineering in PDF only on Docsity!
D196 WGU |Questions with 100% Correct
Answers | Updated & Verified | 2025
What is the role and purpose of accounting? - ✔✔Role: To help track income and expenditures, and to provide investors, management, and government with financial information. Purpose: To accumulate, measure, and communicate financial information about businesses and other organizations. · Who uses accounting information and why? - ✔✔Potential investors and creditors use accounting information, but basically everyone uses accounting information. They use it to make internal and external business decisions. · What are the important influences on accounting? - ✔✔Important influences on accounting is the development of the "generally accepted accounting principles"(GAAP), international business and ethical consideration. · What is the role of ethics in accounting? - ✔✔Being an accountant requires honesty and integrity, as well as professional judgement. So having ethics in accounting is very important. What are the three main functions of accounting? - ✔✔The 3 main functions of accounting are: Analyzing, Bookkeeping, and Evaluating(ABE). The Financial Accounting Standards Board(FASB) - ✔✔An organization responsible for studying accounting issues and establishing standards a) Private group
b) Public process c) Establishes GAAP The Governmental Accounting Standards Board(GASB) - ✔✔A private, non governmental organization who sets accounting and financial reporting standards for state and local governments Securities and Exchange Commission(SEC) - ✔✔Regulates stock exchanges a) Has legal authority to regulate financial markets and accounting b) Usually defers to the FASB on accounting matters The Public Company Accounting Oversight Board(PCAOB) - ✔✔Oversees all accounting firms. Internal Revenue Service(IRS) - ✔✔Collects and regulates income taxes International Accounting Standards Board(IASB) - ✔✔The FASB of the world(except the USA) Assets - ✔✔assets are what we OWN. Common Assets:
- ) Cash
- ) Accounts receivable
- ) Inventory
- ) Buildings
- ) Prepaid
Can you explain the 'expanded' accounting equation? - ✔✔Assets=Liabilities+(Capital Stock+Cumulative Net Income-Cumulative Dividends) What are the four financial statements covered in this module? - ✔✔Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Retained Earnings Can you define and explain the purpose of the Balance Sheet and its components? - ✔✔A balance sheet is the statement of the company's financial position at a certain period, and records the company's assets, liabilities, and owners' equity. The purpose of a balance sheet is to report the resources of a company, the company's obligations, and the owners' equity. The components of a balance sheet are: Assets, Liabilities, and Owner's equity.
- ) The balance sheet equation: Assets=Liabilities+Equity(ALE).
- ) Classified Balance Sheet: A balance sheet that distinguishes between current and long-term assets. Can you define and explain the purpose of the Income Statement and the components that it contains? - ✔✔An income statement is the statement of earnings, and records the amount of revenue(profits) generated, and costs incurred(expenses) by a company during a period of time(a month, a quarter, a year). The purpose of an income statement is to assess a company's profitability by looking at the company's profits, and expenses. The income statement also summarizes the company's operations at a certain period. The components of an income statement are: revenues, expenses, and net income.
Can you define and explain the purpose of the Statement of Retained Earnings and the components that it contains? - ✔✔A statement of retained earnings identifies the changes in accumulated investments made by owners, and the losses/profits of a business since day one. The purpose of a statement of retained earnings is to identify changes in investments made by owners from the beginning of the statement to the end. The components of a statement of retained earnings are: Retained Earnings from the previous period, Net Income, and Dividends. Can you define and explain the purpose of the Statement of Cash Flows and the components that it contains? - ✔✔A statement of cash flows reports the amount of cash collected and cash paid out by a company in operating, investing, and financing operations during a period of time. The purpose of a statement of cash flows is to provide information of cash inflows(receipts) and cash outflows(payments).The components of a statement of cash flows are:
- ) Operating activities: Which are normal business activities a) Examples of operating activities: Paying employees, paying rent, and collecting cash from customers.
- ) Investing activities: Associated with buying and selling long-term assets a) Examples of investing activities: Buying/selling land, Buying/selling equipment, etc.
- ) Financing activities: The activities in which cash is collected from or repaid to investors and creditors. a) Examples of financing activities: Borrowing money, repaying loans, and paying dividends Can you explain the importance of Notes to the Financial Statements and what is included in these notes? - ✔✔The importance of Notes to the Financial Statements is that they give the information that is important, but not listed in the other statements, giving additional information we'd like to know. The notes of financial statements include a summary of Significant accounting policies, Additional information about the summary totals, Disclosure of information NOT recognized in the financial statements, and Any additional information
Equations for vertical and horizontal analysis charts: - ✔✔Year to year change: =(Account Current- Account Previous)/Account Previous OR =(Year 2-Year 1)/Year 1. Percentage of Sales - ✔✔Income Statement amount/Sales Example: =F4/$F$ Gross Profit - ✔✔Sales-Cost of Goods Sold Tax Calculation - ✔✔Earnings before Taxes X Tax Rate Can you describe the cash budgeting process and why it is important to any organization? - ✔✔The cash budgeting process is a schedule of charting your expected cash inflows and cash outflows during a certain period. It is important for an organization because it gives the company a knowledge and expectation of where their money is going and how to handle their money, as well as noticing times of cash shortages and cash surpluses. Can you identify and explain what cash receipts(cash inflows) are? - ✔✔A cash receipt is taking account and acknowledging the cash transactions being received by the company. What is an Aging Schedule? - ✔✔An aging schedule is an analysis of past cash flow patterns to reveal the expected timing of future cash collections Can you use the Excel charting abilities to show the effects to 'manage' cash receipts and cash disbursements?
Steps to creating a Cash flow Chart: - ✔✔1) Click on "Insert"
- Choose a chart
- Select a data range in "Chart Design"
- Input data
- Edit horizontal axis labels
- Remove the legend, and add a title
- Add data labels, by going to chart design(1), add chart elements(2), add data labels(3). What exactly is a budget and why do we prepare these? - ✔✔A budget is a quantitative expression of a plan that shows how a firm or organization will acquire and use resources. We prepare a budget so we can plan how we spend or receive our money, so we don't go into debt or go over the budget. Explain what a master budget is and why it's important? - ✔✔A master budget is a network of many separate schedules and budgets that together constitute the overall operating and financing plan for the upcoming period. A master budget is important because it is used to compare the budgeted performance to the actual performance. · Can you describe the master budgeting process for a manufacturing firm? - ✔✔The master budgeting process for a manufacturing firm is broken down into quarterly sales based off how many items were sold. Sales Budget - ✔✔A sales budget is a schedule of projected sales over the budget period, which often includes a measure of revenue earned and cash collected from its customers.
Responsibility accounting impacts an organization because it gives complete accountability of cost loss and cost profit to the manager What do responsibility centers represent? - ✔✔Responsibility centers represent Profit and Cost centers. What are profit and cost centers and why do they matter? - ✔✔Profit Center: A profit center is an organizational unit in which a manager has control over and is held accountable for BOTH cost and revenue performances. Cost Center: A cost center is an organizational unit in which a manager has control over and is held accountable for ONLY cost performance, and only for what a manager can control. Both matter because it gives the managers control of what to do with the money, and any mistake they make could hurt the business. Can you identify specific examples of each? - ✔✔Profit Center: An example of a profit center is a store manager for a fast-food restaurant. Cost Center: An example of a cost center is a department supervisor in a factory Can you explain how segment margin statements work and what purpose do they serve in performance evaluation? - ✔✔A segment margin statement works by showing the profits and losses that are directly chargeable to a segment and divides them into variable and fixed cost behavior patterns. A segment margin statements purpose in performance evaluation is to give a good picture of the strengths and weaknesses of a company.
What is cost variance? - ✔✔A cost variance is the difference between the actual cost and the budgeted cost What are Indirect and Direct Costs? - ✔✔Indirect Cost(Common Costs): Indirect costs are costs that are usually shared among segments of an organization. Examples: Salaries, depreciation, and quality control costs. Direct Costs: Direct costs are costs that are traceable to a business unit or segment of an organization. Examples: Direct Labor, and Direct Materials What is Managerial Accounting and how does it differ from Financial Accounting? - ✔✔Managerial Accounting: The gathering of information for internal decision making(secret information not released to the public). Financial Accounting: The gathering, analyzing, and reporting of information for the benefit of external users(such as investors and creditors). Financial accounting information is prepared according to the GAAP The way these two differ is that managerial accounting is information for the inside, only for the business to know about. Whereas financial accounting is made for anyone to know, such as the external users(Investors). Can you explain the concepts of planning, evaluating, and controlling, as it relates to decision-making? - ✔✔Planning: Outlining activities that need to be performed for an organization to achieve its objective. Evaluating: Analyzing results, providing feedback, rewarding performances, and identifying problems.
Examples: Hospitals, or Law Firms Merchandising Business: A merchandising business is any organization whose main economic activity involves purchasing finished goods and reselling them to customers. Examples: Walmart, Kroger, or Home Depot The difference between these is that a manufacturing company builds their products, whereas a merchandising business sells the products bought from a manufacturer. Another difference is the costs and how the costs are tracked. What are product costs? - ✔✔Product costs are costs associated with a product or service being offered. Product costs are costs INSIDE the factory such as material costs, and wages of workers directly involved with the production. Product costs are manufacturing costs. Direct materials: Materials that become part of the product and is traceable to it. Direct labor: Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products. Manufacturing overhead: All costs incurred in the manufacturing process other than direct materials and direct labor. Examples: Rent expenses, Utility Expenses, and Supervisory staff
What are period costs? - ✔✔Period costs are costs not directly related to a product. Period costs are costs OUTSIDE the factory such as Company HQ costs(Rent) or selling costs(advertising). Period costs are Non-Manufacturing costs. Examples of period costs: CEO Salaries, Sales and marketing costs, and administrative personnel costs · How are product and period costs recorded? - ✔✔Product costs are recorded in the income statement as part of cost of goods sold to a customer and are held in inventory until they're sold.Period costs are recorded and reported immediately as an expense on the income statement in the period they incurred. How are product costs handled by a manufacturing, a merchandising, and a service business? - ✔✔Manufacturing: In manufacturing, product cost is divided into three categories and handled through these categories: Direct Materials, Direct Labor, and Manufacturing Overhead. Merchandising: In merchandising, product cost is handled when an inventory is sold, the cost of the inventory is credited from the merchandise inventory and then debited to cost of goods sold. Service: Service businesses use direct labor, and large amounts of overhead costs that are allocated to individual products. Service businesses add value through the creativity and the effort of people(direct labor). Can you identify indirect materials and indirect labor and how they are handled in a manufacturing business? - ✔✔Indirect labor: Indirect labor is easier to identify in administration, management, safety, and maintenance workers. They're all contributing to the manufacturing, but they never touch the product itself, thus being "indirect".
This is important because a variable cost varies, so it will be harder to find your break-even point for a variable cost. Examples of Variable Costs: Direct Labor, Direct Materials, and Variable Overhead. What are stepped fixed costs? - ✔✔A stepped fixed cost is a cost that doesn't change within a certain set threshold of activity but will change if that threshold is broken. What are mixed costs? - ✔✔Mixed costs are costs containing both variable and fixed costs. Examples of mixed costs: water and electric bills, cable bill, and phone bill Can you explain and determine the estimated overhead? - ✔✔Estimated overhead is the amount of overhead costs that are budgeted for in the upcoming production period estimated overhead is determined by doing: Estimated overhead/Estimation of expected level of activity Can you explain and determine the actual overhead? - ✔✔any manufacturing cost other than direct labor and direct materials. Actual Overhead is determined by doing: Indirect costs/Direct costs X 100.
Can you explain and determine applied overhead? - ✔✔Applied overhead is the amount of overhead assigned to the goods produced. You can determine applied overhead by multiplying the predetermined overhead rate by the actual level of activity in the period. Predetermined overhead rate X actual level of activity · What is overapplied and underapplied overhead? - ✔✔Overapplied Overhead: Overapplied overhead is the excess of APPLIED manufacturing overhead costs over the actual manufacturing costs(applied/actual). Underapplied Overhead: Underapplied overhead is the excess of ACTUAL manufacturing overhead costs over the applied overhead costs(actual/applied). Over=Excess of applied Under=Excess of actual · What is the C-V-P equation? - ✔✔Sales Revenue-Variable Costs-Fixed Costs=Profit · What is contribution margin and how is it calculated? - ✔✔Contribution Margin is the difference between total sales and variable costs. Contribution Margin calculation: Sales Revenue-Variable Costs=Contribution Margin
What are sunk costs? - ✔✔costs that have incurred in the past and cannot be changed no matter the future decision. What are differential costs? - ✔✔costs are future costs that can change based off the decision made. What are opportunity costs? - ✔✔Opportunity costs are the benefits lost or forfeited because of choosing one option over the other. What are out of pocket costs? - ✔✔Out of Pocket costs are costs that require cash or other resources as payment. Variable Cost Ratio - ✔✔Variable cost / Sales Variable Cost - ✔✔Fixed Cost/Price Per Unit Variable Cost per unit - ✔✔Fixed Cost/(Selling price per unit-Variable Cost)=Break-Even Total Sales Revenue - ✔✔Price Per Unit X Units Sold Total Variable Costs - ✔✔Variable Cost Per Unit X Units Sold Fixed Costs - ✔✔Contribution Margin-Net Income
Contribution Margin per unit - ✔✔contribution margin / units sold What is Job-order costing? - ✔✔a method that is used to determine the cost of manufacturing each product. It's used when products are made based off specific customer orders. Who uses Job-order Costing? - ✔✔An example of someone who uses job-order costing is a construction business, a mechanic, or a production job. When TO USE Job-order Costing: - ✔✔On Home Improvement A) Tracking Material B) Tracking Labor C) Allocating Overhead When fixing a car When TO NOT use Job-order Costing: - ✔✔Companies such as gas companies, chemical companies, paper and plastic companies, and food companies should NOT use job-order costing. How do costs and products flow for a manufacturer in Job-order costing? - ✔✔Raw Materials, Work-in- process inventory, finished goods, and cost of goods sold What is a predetermined overhead rate? - ✔✔A predetermined overhead rate is the rate used to apply manufacturing overhead to work-in-process inventory. The predetermined overhead rate is calculated before the period begins.
