C 213 C213 Final Exam Latest

C 213 / C213 Final Exam (Latest Update 2025 / 2026) Accounting for Decision Makers | Questions and Answers | Grade A | 100% Correct - WGU

Question:

Identify components of the cash flow statement.

Answer:

The Statement of Cash Flows details how a company obtained and spent cash during a certain period of time. Thus, the cash flow statement explains the change in the firm's cash account for a period of time. All of a company's cash transactions are categorized as either operating, investing, or financing activities.

i) Operating cash flows are those associate with any activity on the income

statement. The operating section of the cash flow statement is what the income statement would show if the income statement were prepared on a cash basis and not accrual basis.

ii) Investing cash flow are those related to a firm investing in itself (purchasing and selling property, plant and equipment or other businesses) and investing in others (buying the stocks and bonds of another firm or lending another firm money). 1 / 4

iii) Financing cash flows are those associated with someone investing in your firm, either stockholders (buying and selling your stock and paying dividends) and creditors (borrowing and paying back debt).

Question:

Explain the purpose of notes to financial statements.

Answer:

There are four main areas that must be covered in the financial statement

footnotes:

A summary of significant accounting policies. GAAP frequently allows firms to make choices in preparing their financial statements and so GAAP requires that those choices be reported in the footnotes. For example, the firm must report the method they are using to calculation depreciation along with the average useful lives for major classes of depreciable assets.

Additional information about the summary totals found in the statements.For example if a firm as a notes payable account in their long-term liabilities, they must list all the individual notes that make up the balance and present the life of the loan and its interest rate.

Disclosure of important information not recognized in the statements. For example, if the firm is the defendant in a lawsuit but the outcome of the suit is unclear, the firm must report the existence of the suit in the footnotes.Since the outcome is uncertain, GAAP does not require the firm to accrue a liability for the possible loss thus the possible loss has not been recognized in 2 / 4

the financial statements (i.e., no liability has been reported on the balance sheet).

Supplementary information required by the Financial Accounting Standards Board (FASB) or the Securities and Exchange Commission (SEC). This is a broad category. One example is reporting summary financial data for different segments of the firm operates in different industries.

Question:

Describe the purpose of an external audit.

Answer:

Audit conducted by external (independent) qualified accountant(s). These accountants are usually CPAs, but they may not be. Each state determines who can be a CPA in that state and states have slightly different requirements.

The independent accounting firm conducts tests to determine whether the financial statements fairly reflect the financial status of the company issuing them and whether the financial statements were prepared using Generally Accepted Accounting Principles (GAAP). The tests include an examination of the original documents underlying key transactions, a spot check to verify that reported inventory actually does exist, and contact with a sample of customers and suppliers to confirm the sales and purchases reported by the company. The external auditor would also carefully review the system of procedures and controls within the company to determine whether the accounting records are maintained in a reliable fashion.

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Firms hire independent external auditors for a variety of reasons. In some cases, laws and regulations mandate that they do so. Aside for regulations, firms benefit when raising funds through stock sales or by borrowing by being able to show the potential investor or creditor that their financial statements have been audited because that increases the credibility of those financial statements.

Question:

Comparability

Answer:

Information that becomes much more useful when it can be related to a benchmark or standard. Also, other firm's results or the firm's own history.

Question:

Conservatism

Answer:

A pervasive factor in accounting that can be summarized as follows: when

doubt exists concerning two or more reporting alternatives, users should select the alternative with the least favorable impact on reported income, assets, and liabilities.

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