WGU D074 – Principles of Accounting
Exam Final Exam Prep (Latest Update
) Questions and Verified
Answers | 100% Correct | Grade A.
1. Which financial statement reports a company’s assets, liabilities,
and equity at a specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Rationale: The balance sheet, also called the statement of financial
position, presents a company’s assets, liabilities, and owners’ equity as
of a particular date. The income statement reports revenues and
expenses over a period, while the statement of cash flows reports cash
inflows and outflows. The statement of retained earnings explains
changes in retained earnings during a period.
2. Which accounting equation is fundamental to double-entry
accounting?
A. Assets = Revenue − Expenses
B. Assets = Liabilities − Equity
C. Assets = Liabilities + Equity
D. Equity = Assets + Liabilities
,Rationale: The fundamental accounting equation is Assets = Liabilities +
Equity. It reflects the fact that a company’s resources are financed either
by creditors through liabilities or by owners through equity. Every
transaction recorded in the accounting system must preserve this
equation.
3. A company purchases equipment for $12,000 cash. What is the
effect of this transaction on the accounting equation?
A. Assets increase by $12,000 and liabilities increase by $12,000
B. Assets decrease by $12,000 and equity decreases by $12,000
C. Assets increase by $12,000 and equity increases by $12,000
D. One asset increases by $12,000 while another asset decreases by
$12,000
Rationale: Equipment is an asset, and cash is also an asset. Purchasing
equipment for cash transfers value from one asset account to another.
Total assets remain unchanged, and there is no immediate effect on
liabilities or equity.
4. Which account normally has a debit balance?
A. Accounts payable
B. Common stock
C. Service revenue
D. Accounts receivable
Rationale: Asset accounts normally have debit balances. Accounts
receivable is an asset representing amounts owed to the company by
,customers. Liabilities, equity, and revenue accounts generally have
normal credit balances.
5. A company performs services for a customer and receives $5,000
cash immediately. Which journal entry is correct?
A. Debit Service Revenue $5,000; Credit Cash $5,000
B. Debit Accounts Receivable $5,000; Credit Service Revenue $5,000
C. Debit Cash $5,000; Credit Service Revenue $5,000
D. Debit Cash $5,000; Credit Accounts Payable $5,000
Rationale: Cash increases, so Cash is debited. The company has earned
revenue by providing services, so Service Revenue is credited. Because
the customer paid immediately, no accounts receivable is created.
6. Which principle requires revenues to be recognized when they are
earned rather than necessarily when cash is received?
A. Cost principle
B. Going-concern principle
C. Full-disclosure principle
D. Revenue recognition principle
Rationale: The revenue recognition principle requires revenue to be
recognized when the company satisfies the applicable performance
obligation and earns the revenue, rather than simply when cash is
collected. This is a central concept of accrual accounting.
, 7. Under accrual accounting, when should an expense generally be
recognized?
A. When cash is paid
B. When management approves the expense
C. When the expense is incurred to help generate revenue
D. When the supplier sends a monthly statement
Rationale: Accrual accounting recognizes expenses when they are
incurred rather than necessarily when cash is paid. The matching
concept helps associate expenses with the revenues they help generate
during the same reporting period.
8. A business receives $3,000 cash in advance from a customer for
services it will provide next month. How should the $3,000 initially be
recorded?
A. Debit Cash and credit Service Revenue
B. Debit Accounts Receivable and credit Service Revenue
C. Debit Cash and credit Unearned Revenue
D. Debit Unearned Revenue and credit Cash
Rationale: Cash increases, so Cash is debited. Because the company has
not yet provided the services, it has not earned the revenue. The
obligation to provide future services is recorded as a liability called
Unearned Revenue or Deferred Revenue.
9. Which financial statement primarily reports revenues and expenses
for a specific accounting period?
Exam Final Exam Prep (Latest Update
) Questions and Verified
Answers | 100% Correct | Grade A.
1. Which financial statement reports a company’s assets, liabilities,
and equity at a specific point in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Rationale: The balance sheet, also called the statement of financial
position, presents a company’s assets, liabilities, and owners’ equity as
of a particular date. The income statement reports revenues and
expenses over a period, while the statement of cash flows reports cash
inflows and outflows. The statement of retained earnings explains
changes in retained earnings during a period.
2. Which accounting equation is fundamental to double-entry
accounting?
A. Assets = Revenue − Expenses
B. Assets = Liabilities − Equity
C. Assets = Liabilities + Equity
D. Equity = Assets + Liabilities
,Rationale: The fundamental accounting equation is Assets = Liabilities +
Equity. It reflects the fact that a company’s resources are financed either
by creditors through liabilities or by owners through equity. Every
transaction recorded in the accounting system must preserve this
equation.
3. A company purchases equipment for $12,000 cash. What is the
effect of this transaction on the accounting equation?
A. Assets increase by $12,000 and liabilities increase by $12,000
B. Assets decrease by $12,000 and equity decreases by $12,000
C. Assets increase by $12,000 and equity increases by $12,000
D. One asset increases by $12,000 while another asset decreases by
$12,000
Rationale: Equipment is an asset, and cash is also an asset. Purchasing
equipment for cash transfers value from one asset account to another.
Total assets remain unchanged, and there is no immediate effect on
liabilities or equity.
4. Which account normally has a debit balance?
A. Accounts payable
B. Common stock
C. Service revenue
D. Accounts receivable
Rationale: Asset accounts normally have debit balances. Accounts
receivable is an asset representing amounts owed to the company by
,customers. Liabilities, equity, and revenue accounts generally have
normal credit balances.
5. A company performs services for a customer and receives $5,000
cash immediately. Which journal entry is correct?
A. Debit Service Revenue $5,000; Credit Cash $5,000
B. Debit Accounts Receivable $5,000; Credit Service Revenue $5,000
C. Debit Cash $5,000; Credit Service Revenue $5,000
D. Debit Cash $5,000; Credit Accounts Payable $5,000
Rationale: Cash increases, so Cash is debited. The company has earned
revenue by providing services, so Service Revenue is credited. Because
the customer paid immediately, no accounts receivable is created.
6. Which principle requires revenues to be recognized when they are
earned rather than necessarily when cash is received?
A. Cost principle
B. Going-concern principle
C. Full-disclosure principle
D. Revenue recognition principle
Rationale: The revenue recognition principle requires revenue to be
recognized when the company satisfies the applicable performance
obligation and earns the revenue, rather than simply when cash is
collected. This is a central concept of accrual accounting.
, 7. Under accrual accounting, when should an expense generally be
recognized?
A. When cash is paid
B. When management approves the expense
C. When the expense is incurred to help generate revenue
D. When the supplier sends a monthly statement
Rationale: Accrual accounting recognizes expenses when they are
incurred rather than necessarily when cash is paid. The matching
concept helps associate expenses with the revenues they help generate
during the same reporting period.
8. A business receives $3,000 cash in advance from a customer for
services it will provide next month. How should the $3,000 initially be
recorded?
A. Debit Cash and credit Service Revenue
B. Debit Accounts Receivable and credit Service Revenue
C. Debit Cash and credit Unearned Revenue
D. Debit Unearned Revenue and credit Cash
Rationale: Cash increases, so Cash is debited. Because the company has
not yet provided the services, it has not earned the revenue. The
obligation to provide future services is recorded as a liability called
Unearned Revenue or Deferred Revenue.
9. Which financial statement primarily reports revenues and expenses
for a specific accounting period?
