WGU D774 Introduction to Business Accounting – Complete OA
Practice Exam
Question 1
1. Which of the following is the fundamental accounting equation?
A) Assets = Liabilities + Revenue
B) Assets = Liabilities + Stockholders’ Equity
C) Assets = Expenses + Retained Earnings
D) Liabilities = Assets + Equity
Answer
Answer B: Assets = Liabilities + Stockholders’ Equity
Rationale
The accounting equation forms the basis of double-entry accounting: Assets = Liabilities + Equity.
Question 2
2. A company pays $1,000 for rent. This transaction would be recorded as:
A) Debit Cash, Credit Rent Expense
B) Debit Rent Expense, Credit Cash
C) Debit Rent Expense, Credit Accounts Payable
D) Debit Prepaid Rent, Credit Cash
Answer
Answer B: Debit Rent Expense, Credit Cash
Rationale
Rent expense increases (debit) and cash decreases (credit).
Question 3
,3. Which financial statement reports a company’s financial position at a specific point in time?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
Answer
Answer B: Balance sheet
Rationale
The balance sheet shows assets, liabilities, and equity at a specific date.
Question 4
4. A company receives $500 from a customer for services to be performed next month. The
company should record:
A) Service Revenue
B) Unearned Revenue (liability)
C) Accounts Receivable
D) Prepaid Revenue
Answer
Answer B: Unearned Revenue (liability)
Rationale
Cash received before service is performed is unearned revenue, a liability.
Question 5
5. Which of the following is an asset?
A) Accounts Payable
B) Accounts Receivable
C) Common Stock
D) Salaries Payable
Answer
,Answer B: Accounts Receivable
Rationale
Accounts receivable is a right to receive cash, an asset.
Question 6
6. The normal balance of a liability account is:
A) Debit
B) Credit
C) Zero
D) Depends on the account
Answer
Answer B: Credit
Rationale
Liabilities have a normal credit balance.
Question 7
7. A company’s total assets are $50,000 and total liabilities are $20,000. Stockholders’ equity is:
A) $20,000
B) $50,000
C) $30,000
D) $70,000
Answer
Answer C: $30,000
Rationale
Equity = Assets – Liabilities = $50,000 – $20,000 = $30,000.
Question 8
, 8. The revenue recognition principle states that revenue should be recognized when:
A) Cash is received
B) It is earned (performance obligation satisfied)
C) The invoice is sent
D) The order is placed
Answer
Answer B: It is earned (performance obligation satisfied)
Rationale
Revenue is recognized when earned, not necessarily when cash is received.
Question 9
9. Which of the following is a liability?
A) Prepaid Insurance
B) Notes Payable
C) Supplies
D) Equipment
Answer
Answer B: Notes Payable
Rationale
Notes payable represent amounts owed to creditors, a liability.
Question 10
10. A company purchases inventory on account. This transaction affects:
A) Assets only
B) Assets and liabilities
C) Assets and equity
D) Liabilities only
Answer
Practice Exam
Question 1
1. Which of the following is the fundamental accounting equation?
A) Assets = Liabilities + Revenue
B) Assets = Liabilities + Stockholders’ Equity
C) Assets = Expenses + Retained Earnings
D) Liabilities = Assets + Equity
Answer
Answer B: Assets = Liabilities + Stockholders’ Equity
Rationale
The accounting equation forms the basis of double-entry accounting: Assets = Liabilities + Equity.
Question 2
2. A company pays $1,000 for rent. This transaction would be recorded as:
A) Debit Cash, Credit Rent Expense
B) Debit Rent Expense, Credit Cash
C) Debit Rent Expense, Credit Accounts Payable
D) Debit Prepaid Rent, Credit Cash
Answer
Answer B: Debit Rent Expense, Credit Cash
Rationale
Rent expense increases (debit) and cash decreases (credit).
Question 3
,3. Which financial statement reports a company’s financial position at a specific point in time?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of retained earnings
Answer
Answer B: Balance sheet
Rationale
The balance sheet shows assets, liabilities, and equity at a specific date.
Question 4
4. A company receives $500 from a customer for services to be performed next month. The
company should record:
A) Service Revenue
B) Unearned Revenue (liability)
C) Accounts Receivable
D) Prepaid Revenue
Answer
Answer B: Unearned Revenue (liability)
Rationale
Cash received before service is performed is unearned revenue, a liability.
Question 5
5. Which of the following is an asset?
A) Accounts Payable
B) Accounts Receivable
C) Common Stock
D) Salaries Payable
Answer
,Answer B: Accounts Receivable
Rationale
Accounts receivable is a right to receive cash, an asset.
Question 6
6. The normal balance of a liability account is:
A) Debit
B) Credit
C) Zero
D) Depends on the account
Answer
Answer B: Credit
Rationale
Liabilities have a normal credit balance.
Question 7
7. A company’s total assets are $50,000 and total liabilities are $20,000. Stockholders’ equity is:
A) $20,000
B) $50,000
C) $30,000
D) $70,000
Answer
Answer C: $30,000
Rationale
Equity = Assets – Liabilities = $50,000 – $20,000 = $30,000.
Question 8
, 8. The revenue recognition principle states that revenue should be recognized when:
A) Cash is received
B) It is earned (performance obligation satisfied)
C) The invoice is sent
D) The order is placed
Answer
Answer B: It is earned (performance obligation satisfied)
Rationale
Revenue is recognized when earned, not necessarily when cash is received.
Question 9
9. Which of the following is a liability?
A) Prepaid Insurance
B) Notes Payable
C) Supplies
D) Equipment
Answer
Answer B: Notes Payable
Rationale
Notes payable represent amounts owed to creditors, a liability.
Question 10
10. A company purchases inventory on account. This transaction affects:
A) Assets only
B) Assets and liabilities
C) Assets and equity
D) Liabilities only
Answer
