WGU C213 Accounting for Decision Makers OA – Complete Exam Study
Guide with 200+ Questions, Answers & Rationales | Pass the Objective
Assessment on Your First Attempt
Question 1
What is the fundamental purpose of the balance sheet in financial reporting?
A) To show revenues and expenses over a period
B) To report the company's financial position at a specific point in time
C) To detail cash inflows and outflows
D) To allocate costs to products
Correct Answer: B) To report the company's financial position at a specific point in
time
Rationale: The balance sheet presents assets, liabilities, and equity at a specific date,
reflecting the accounting equation (Assets = Liabilities + Equity). This snapshot aids
stakeholders in assessing solvency and liquidity through ratios like the current ratio. The
income statement shows revenues and expenses over a period, and the statement of cash
flows details cash inflows and outflows.
Question 2
Under accrual accounting, when are revenues recognized?
A) When cash is received from the customer
B) When the revenue is earned and realizable
C) At the end of the fiscal year
D) When the product is shipped
Correct Answer: B) When the revenue is earned and realizable
Rationale: The revenue recognition principle requires that revenue be recognized when it is
earned (the service is performed or goods are delivered) and realizable (collectible). This
ensures matching with expenses and provides accurate period performance. Cash-basis
accounting recognizes revenue only when cash is received.
,Question 3
The matching principle requires that expenses be matched with:
A) The period in which they are paid
B) The revenues they help generate
C) Fixed assets only
D) Inventory costs
Correct Answer: B) The revenues they help generate
Rationale: The matching principle requires that expenses be recorded in the same
accounting period as the revenues they helped generate. This ensures accurate profitability
measurement and compliance with GAAP. For example, depreciation allocates the cost of
an asset over its useful life to match the revenue it generates.
Question 4
What is the role of adjusting entries in the accounting cycle?
A) To record daily transactions
B) To update accounts for accruals, deferrals, and estimates at period-end
C) To close temporary accounts to equity
D) To prepare tax schedules
Correct Answer: B) To update accounts for accruals, deferrals, and estimates at
period-end
Rationale: Adjusting entries are made at the end of an accounting period to ensure that
revenues and expenses are recognized in the correct period (accrual basis). Examples
include accruing wages owed to employees and recording depreciation expense. These
entries transform the unadjusted trial balance into an adjusted trial balance for financial
statement preparation.
Question 5
The trial balance serves to:
,A) Calculate net income
B) Verify that total debits equal total credits
C) Record adjusting entries
D) Prepare the statement of cash flows
Correct Answer: B) Verify that total debits equal total credits
Rationale: The trial balance is a listing of all general ledger accounts with their balances,
used to check that total debits equal total credits. This verifies the mathematical accuracy
of the double-entry accounting system. Net income is calculated on the income statement.
Adjusting entries are recorded before the adjusted trial balance. The statement of cash
flows is prepared separately from the trial balance.
Question 6
Which of the following is an asset account?
A) Accounts Payable
B) Retained Earnings
C) Prepaid Rent
D) Common Stock
Correct Answer: C) Prepaid Rent
Rationale: Prepaid Rent is an asset because it represents rent paid in advance, providing
future economic benefit. Accounts Payable is a liability. Retained Earnings and Common
Stock are equity accounts. Assets are resources owned by the company that provide future
benefit.
Question 7
The accounting equation is:
A) Assets = Liabilities + Revenue
B) Assets = Liabilities + Owner's Equity
C) Assets = Revenue + Expenses
D) Liabilities = Assets + Owner's Equity
, Correct Answer: B) Assets = Liabilities + Owner's Equity
Rationale: The accounting equation (Assets = Liabilities + Owner's Equity) is the
foundation of double-entry accounting. It shows that what the company owns (assets) is
financed by what it owes (liabilities) and what the owners have invested (equity). This
equation must always balance after every transaction.
Question 8
Which financial statement reports a company's revenues and expenses for a specific
period?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
Correct Answer: B) Income Statement
Rationale: The income statement reports revenues, expenses, gains, and losses over a
period, ultimately calculating net income or net loss. The balance sheet reports financial
position at a point in time. The statement of cash flows reports cash inflows and outflows.
The statement of retained earnings shows changes in retained earnings.
Question 9
The statement of cash flows categorizes cash flows into which three activities?
A) Operating, Investing, and Financing
B) Operating, Selling, and Financing
C) Investing, Financing, and Administrative
D) Selling, Administrative, and Manufacturing
Correct Answer: A) Operating, Investing, and Financing
Rationale: The statement of cash flows classifies cash inflows and outflows into three
categories: operating (day-to-day business activities), investing (purchase/sale of
Guide with 200+ Questions, Answers & Rationales | Pass the Objective
Assessment on Your First Attempt
Question 1
What is the fundamental purpose of the balance sheet in financial reporting?
A) To show revenues and expenses over a period
B) To report the company's financial position at a specific point in time
C) To detail cash inflows and outflows
D) To allocate costs to products
Correct Answer: B) To report the company's financial position at a specific point in
time
Rationale: The balance sheet presents assets, liabilities, and equity at a specific date,
reflecting the accounting equation (Assets = Liabilities + Equity). This snapshot aids
stakeholders in assessing solvency and liquidity through ratios like the current ratio. The
income statement shows revenues and expenses over a period, and the statement of cash
flows details cash inflows and outflows.
Question 2
Under accrual accounting, when are revenues recognized?
A) When cash is received from the customer
B) When the revenue is earned and realizable
C) At the end of the fiscal year
D) When the product is shipped
Correct Answer: B) When the revenue is earned and realizable
Rationale: The revenue recognition principle requires that revenue be recognized when it is
earned (the service is performed or goods are delivered) and realizable (collectible). This
ensures matching with expenses and provides accurate period performance. Cash-basis
accounting recognizes revenue only when cash is received.
,Question 3
The matching principle requires that expenses be matched with:
A) The period in which they are paid
B) The revenues they help generate
C) Fixed assets only
D) Inventory costs
Correct Answer: B) The revenues they help generate
Rationale: The matching principle requires that expenses be recorded in the same
accounting period as the revenues they helped generate. This ensures accurate profitability
measurement and compliance with GAAP. For example, depreciation allocates the cost of
an asset over its useful life to match the revenue it generates.
Question 4
What is the role of adjusting entries in the accounting cycle?
A) To record daily transactions
B) To update accounts for accruals, deferrals, and estimates at period-end
C) To close temporary accounts to equity
D) To prepare tax schedules
Correct Answer: B) To update accounts for accruals, deferrals, and estimates at
period-end
Rationale: Adjusting entries are made at the end of an accounting period to ensure that
revenues and expenses are recognized in the correct period (accrual basis). Examples
include accruing wages owed to employees and recording depreciation expense. These
entries transform the unadjusted trial balance into an adjusted trial balance for financial
statement preparation.
Question 5
The trial balance serves to:
,A) Calculate net income
B) Verify that total debits equal total credits
C) Record adjusting entries
D) Prepare the statement of cash flows
Correct Answer: B) Verify that total debits equal total credits
Rationale: The trial balance is a listing of all general ledger accounts with their balances,
used to check that total debits equal total credits. This verifies the mathematical accuracy
of the double-entry accounting system. Net income is calculated on the income statement.
Adjusting entries are recorded before the adjusted trial balance. The statement of cash
flows is prepared separately from the trial balance.
Question 6
Which of the following is an asset account?
A) Accounts Payable
B) Retained Earnings
C) Prepaid Rent
D) Common Stock
Correct Answer: C) Prepaid Rent
Rationale: Prepaid Rent is an asset because it represents rent paid in advance, providing
future economic benefit. Accounts Payable is a liability. Retained Earnings and Common
Stock are equity accounts. Assets are resources owned by the company that provide future
benefit.
Question 7
The accounting equation is:
A) Assets = Liabilities + Revenue
B) Assets = Liabilities + Owner's Equity
C) Assets = Revenue + Expenses
D) Liabilities = Assets + Owner's Equity
, Correct Answer: B) Assets = Liabilities + Owner's Equity
Rationale: The accounting equation (Assets = Liabilities + Owner's Equity) is the
foundation of double-entry accounting. It shows that what the company owns (assets) is
financed by what it owes (liabilities) and what the owners have invested (equity). This
equation must always balance after every transaction.
Question 8
Which financial statement reports a company's revenues and expenses for a specific
period?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Retained Earnings
Correct Answer: B) Income Statement
Rationale: The income statement reports revenues, expenses, gains, and losses over a
period, ultimately calculating net income or net loss. The balance sheet reports financial
position at a point in time. The statement of cash flows reports cash inflows and outflows.
The statement of retained earnings shows changes in retained earnings.
Question 9
The statement of cash flows categorizes cash flows into which three activities?
A) Operating, Investing, and Financing
B) Operating, Selling, and Financing
C) Investing, Financing, and Administrative
D) Selling, Administrative, and Manufacturing
Correct Answer: A) Operating, Investing, and Financing
Rationale: The statement of cash flows classifies cash inflows and outflows into three
categories: operating (day-to-day business activities), investing (purchase/sale of
