WGU C213 ACCOUNTING FOR DECISION MAKERS EXAM
2026/2027 | Questions and Verified Answers | A Grade | Pass
Guaranteed
Part I: Financial Accounting Foundations & the Accounting Cycle
(Questions 1–18)
Q1: A small business owner wants to understand why their bank balance differs from
their business profit. Which accounting basis explains this timing difference?
A. The cash basis, which records all transactions when cash moves, making profit equal
to bank balance always
B. The accrual basis, which matches revenues and expenses to when they're
earned/incurred regardless of cash flow [CORRECT]
C. The tax basis, which only records income when the IRS demands payment
D. The modified cash basis, which ignores all credit transactions completely
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when earned and expenses when
incurred, creating timing differences between net income and cash flow (accounts
receivable, accounts payable, depreciation). Cash basis records when cash moves, but
doesn't match revenue to effort; tax basis is for tax reporting, not general accounting;
modified cash basis is a hybrid but still doesn't explain GAAP timing differences.
,Q2: Under the revenue recognition principle, when should a consulting firm record
revenue for a project completed in December but paid in January?
A. In January when the cash is received and deposited
B. In December when the services were substantially completed and the earnings
process was done [CORRECT]
C. Equally split between December and January to smooth earnings
D. Whenever the client feels like paying, regardless of work completion
Correct Answer: B
Rationale: Revenue recognition principle (GAAP) states revenue is recognized when
earned (goods/services delivered) and realized/ realizable (payment reasonably
assured). The earnings process was complete in December, so revenue is recognized
then. January cash receipt is an accounts receivable collection. Splitting violates the
principle; payment timing doesn't dictate revenue recognition.
Q3: A company prepays $12,000 for a one-year insurance policy on July 1. What
adjusting entry is needed on December 31?
A. Debit Insurance Expense $12,000, Credit Prepaid Insurance $12,000
B. Debit Prepaid Insurance $6,000, Credit Insurance Expense $6,000
C. Debit Insurance Expense $6,000, Credit Prepaid Insurance $6,000 [CORRECT]
D. No entry needed until the policy expires the following June
Correct Answer: C
,Rationale: By December 31, 6 months of insurance have expired ($12,000 × 6/12 =
$6,000). The adjusting entry recognizes the expired portion as expense and reduces the
asset. Debiting the full amount ignores the remaining 6 months; crediting expense
increases it incorrectly; GAAP requires period-end adjustments for prepaids.
Q4: The accounting equation must always remain in balance. If a company borrows
$50,000 from a bank, what is the effect?
A. Assets decrease $50,000, Liabilities decrease $50,000
B. Assets increase $50,000, Equity increases $50,000
C. Assets increase $50,000, Liabilities increase $50,000 [CORRECT]
D. Liabilities increase $50,000, Equity decreases $50,000
Correct Answer: C
Rationale: Borrowing cash increases assets (Cash +$50,000) and increases liabilities
(Notes Payable +$50,000). Assets = Liabilities + Equity remains balanced. Assets don't
decrease; equity isn't affected by borrowing (only by revenues, expenses, investments,
dividends); liabilities and equity don't offset here.
Q5: Which assumption allows accountants to divide a company's continuous life into
artificial time periods for reporting purposes?
A. The going concern assumption that the business will operate indefinitely
B. The economic entity assumption separating business from owner personal
transactions
C. The time period (periodicity) assumption enabling monthly, quarterly, and annual
reports [CORRECT]
, D. The monetary unit assumption ignoring inflation effects
Correct Answer: C
Rationale: The time period (periodicity) assumption allows division of economic activity
into artificial time periods for timely reporting. Going concern assumes indefinite life but
doesn't enable period division; economic entity separates business/owner; monetary
unit assumes stable currency but doesn't address reporting periods.
Q6: A company has the following year-end data: Beginning Retained Earnings $45,000,
Net Income $28,000, Dividends declared $12,000. What is Ending Retained Earnings?
A. $33,000 (subtracting everything from beginning)
B. $73,000 (ignoring dividends completely)
C. $61,000 (Beginning RE + Net Income - Dividends) [CORRECT]
D. $85,000 (adding everything including dividends)
Correct Answer: C
Rationale: Ending Retained Earnings = Beginning RE + Net Income - Dividends = $45,000
+ $28,000 - $12,000 = $61,000. This represents accumulated profits kept in the
business. $33,000 incorrectly subtracts income; $73,000 ignores dividend distribution;
$85,000 adds dividends which reduces RE.
Q7: In double-entry accounting, which account normally has a debit balance?
A. Accounts Payable
B. Unearned Revenue
2026/2027 | Questions and Verified Answers | A Grade | Pass
Guaranteed
Part I: Financial Accounting Foundations & the Accounting Cycle
(Questions 1–18)
Q1: A small business owner wants to understand why their bank balance differs from
their business profit. Which accounting basis explains this timing difference?
A. The cash basis, which records all transactions when cash moves, making profit equal
to bank balance always
B. The accrual basis, which matches revenues and expenses to when they're
earned/incurred regardless of cash flow [CORRECT]
C. The tax basis, which only records income when the IRS demands payment
D. The modified cash basis, which ignores all credit transactions completely
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when earned and expenses when
incurred, creating timing differences between net income and cash flow (accounts
receivable, accounts payable, depreciation). Cash basis records when cash moves, but
doesn't match revenue to effort; tax basis is for tax reporting, not general accounting;
modified cash basis is a hybrid but still doesn't explain GAAP timing differences.
,Q2: Under the revenue recognition principle, when should a consulting firm record
revenue for a project completed in December but paid in January?
A. In January when the cash is received and deposited
B. In December when the services were substantially completed and the earnings
process was done [CORRECT]
C. Equally split between December and January to smooth earnings
D. Whenever the client feels like paying, regardless of work completion
Correct Answer: B
Rationale: Revenue recognition principle (GAAP) states revenue is recognized when
earned (goods/services delivered) and realized/ realizable (payment reasonably
assured). The earnings process was complete in December, so revenue is recognized
then. January cash receipt is an accounts receivable collection. Splitting violates the
principle; payment timing doesn't dictate revenue recognition.
Q3: A company prepays $12,000 for a one-year insurance policy on July 1. What
adjusting entry is needed on December 31?
A. Debit Insurance Expense $12,000, Credit Prepaid Insurance $12,000
B. Debit Prepaid Insurance $6,000, Credit Insurance Expense $6,000
C. Debit Insurance Expense $6,000, Credit Prepaid Insurance $6,000 [CORRECT]
D. No entry needed until the policy expires the following June
Correct Answer: C
,Rationale: By December 31, 6 months of insurance have expired ($12,000 × 6/12 =
$6,000). The adjusting entry recognizes the expired portion as expense and reduces the
asset. Debiting the full amount ignores the remaining 6 months; crediting expense
increases it incorrectly; GAAP requires period-end adjustments for prepaids.
Q4: The accounting equation must always remain in balance. If a company borrows
$50,000 from a bank, what is the effect?
A. Assets decrease $50,000, Liabilities decrease $50,000
B. Assets increase $50,000, Equity increases $50,000
C. Assets increase $50,000, Liabilities increase $50,000 [CORRECT]
D. Liabilities increase $50,000, Equity decreases $50,000
Correct Answer: C
Rationale: Borrowing cash increases assets (Cash +$50,000) and increases liabilities
(Notes Payable +$50,000). Assets = Liabilities + Equity remains balanced. Assets don't
decrease; equity isn't affected by borrowing (only by revenues, expenses, investments,
dividends); liabilities and equity don't offset here.
Q5: Which assumption allows accountants to divide a company's continuous life into
artificial time periods for reporting purposes?
A. The going concern assumption that the business will operate indefinitely
B. The economic entity assumption separating business from owner personal
transactions
C. The time period (periodicity) assumption enabling monthly, quarterly, and annual
reports [CORRECT]
, D. The monetary unit assumption ignoring inflation effects
Correct Answer: C
Rationale: The time period (periodicity) assumption allows division of economic activity
into artificial time periods for timely reporting. Going concern assumes indefinite life but
doesn't enable period division; economic entity separates business/owner; monetary
unit assumes stable currency but doesn't address reporting periods.
Q6: A company has the following year-end data: Beginning Retained Earnings $45,000,
Net Income $28,000, Dividends declared $12,000. What is Ending Retained Earnings?
A. $33,000 (subtracting everything from beginning)
B. $73,000 (ignoring dividends completely)
C. $61,000 (Beginning RE + Net Income - Dividends) [CORRECT]
D. $85,000 (adding everything including dividends)
Correct Answer: C
Rationale: Ending Retained Earnings = Beginning RE + Net Income - Dividends = $45,000
+ $28,000 - $12,000 = $61,000. This represents accumulated profits kept in the
business. $33,000 incorrectly subtracts income; $73,000 ignores dividend distribution;
$85,000 adds dividends which reduces RE.
Q7: In double-entry accounting, which account normally has a debit balance?
A. Accounts Payable
B. Unearned Revenue
