WGU D774 Intro to Business Accounting
| OA | Objective Assessment | 2025
Update | 100% Correct.
Section 1: The Accounting Environment and Financial Statements
1. Which of the following is the primary objective of financial accounting?
A. To provide information for internal decision-making, such as pricing and production.
B. To provide external users with information useful for making investment and credit decisions.
C. To minimize the company's tax liability.
D. To ensure the company complies with all environmental regulations.
B. To provide external users with information useful for making investment and credit
decisions.
Rationale: Financial accounting focuses on producing general-purpose financial statements
for external parties like investors, creditors, and regulators. Managerial accounting (A) is for
internal users.
2. Which financial statement reports a company's financial position at a specific point in time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flows
C. Balance Sheet
Rationale: The balance sheet (or statement of financial position) is a snapshot of a
company's assets, liabilities, and equity at a specific date. The other statements cover a period
of time.
3. The accounting equation is best represented as:
A. Assets + Liabilities = Equity
B. Assets = Liabilities - Equity
C. Assets = Liabilities + Equity
D. Equity = Assets + Liabilities
, C. Assets = Liabilities + Equity
Rationale: This is the fundamental accounting equation. A company's resources (assets) are
financed by either debt (liabilities) or owner's claims (equity).
4. Which of the following is an example of an asset?
A. Accounts Payable
B. Salaries Expense
C. Common Stock
D. Prepaid Rent
D. Prepaid Rent
Rationale: Prepaid rent is a future economic benefit owned by the company, making it an
asset. Accounts Payable is a liability, Salaries Expense is an expense, and Common Stock is
equity.
5. A company's owner invests $50,000 cash into the business. What is the effect on the
accounting equation?
A. Assets increase, Liabilities increase.
B. Assets increase, Equity increases.
C. Assets decrease, Equity decreases.
D. Assets increase, Assets decrease.
B. Assets increase, Equity increases.
Rationale: The company receives cash (Asset increases). The owner's claim on the business
increases (Equity increases via Common Stock).
6. Which financial statement reports revenues and expenses over a period of time?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Retained Earnings
B. Income Statement
Rationale: The income statement reports a company's financial performance (revenues and
expenses) over a specific period, such as a month or a year.
7. Net income is calculated as:
A. Revenues + Expenses
B. Revenues - Expenses
C. Assets - Liabilities
D. Cash Inflows - Cash Outflows
, B. Revenues - Expenses
Rationale: Net income (or net loss) is the result of subtracting total expenses from total
revenues for a period.
8. Which of the following is a liability?
A. Accounts Receivable
B. Unearned Revenue
C. Equipment
D. Retained Earnings
B. Unearned Revenue
Rationale: Unearned revenue represents a company's obligation to provide goods or
services in the future for which it has already been paid. It is a liability.
9. The statement of retained earnings explains the changes in:
A. Cash from operating, investing, and financing activities.
B. Assets, liabilities, and equity.
C. Revenues, expenses, and dividends.
D. Retained earnings from net income and dividends.
D. Retained earnings from net income and dividends.
Rationale: This statement reconciles the beginning balance of retained earnings with the
ending balance by adding net income and subtracting dividends.
10. Which of the following is an expense?
A. Payment of dividends
B. Purchase of equipment
C. Cost of Goods Sold
D. Repayment of a loan
C. Cost of Goods Sold
Rationale: Cost of Goods Sold is the cost of inventory sold to customers during a period,
making it a primary expense. The other options are asset purchases, dividends, or liability
reductions.
11. Select ALL that apply. Which of the following are considered external users of accounting
information?
A. Investors
B. Marketing managers
C. Creditors
, D. Internal auditors
E. Government agencies
A, C, E
Rationale: Investors (A), creditors (C), and government agencies (E) are external parties.
Marketing managers (B) and internal auditors (D) are internal users.
12. The assumption that a business will continue to operate long enough to carry out its
objectives is called:
A. Monetary Unit Assumption
B. Going Concern Assumption
C. Time Period Assumption
D. Economic Entity Assumption
B. Going Concern Assumption
Rationale: The going concern assumption assumes a business will continue to operate
indefinitely, justifying the use of historical cost for many assets.
13. A company reports total assets of $500,000 and total liabilities of $200,000. What is the
amount of owner's equity?
A. $700,000
B. $300,000
C. $500,000
D. $200,000
B. $300,000
**Rationale:** Using the accounting equation (Assets = Liabilities + Equity), Equity = Assets -
Liabilities. $500,000 - $200,000 = $300,000.
14. Which of the following transactions increases an asset and increases a liability?
A. Paying cash for supplies.
B. Purchasing equipment on account.
C. Receiving cash from a customer for services performed.
D. Paying off a loan with cash.
B. Purchasing equipment on account.
Rationale: Equipment (Asset) increases, and Accounts Payable (Liability) increases.
15. The principle that requires expenses to be reported in the same period as the revenues
they helped generate is the:
A. Revenue Recognition Principle
| OA | Objective Assessment | 2025
Update | 100% Correct.
Section 1: The Accounting Environment and Financial Statements
1. Which of the following is the primary objective of financial accounting?
A. To provide information for internal decision-making, such as pricing and production.
B. To provide external users with information useful for making investment and credit decisions.
C. To minimize the company's tax liability.
D. To ensure the company complies with all environmental regulations.
B. To provide external users with information useful for making investment and credit
decisions.
Rationale: Financial accounting focuses on producing general-purpose financial statements
for external parties like investors, creditors, and regulators. Managerial accounting (A) is for
internal users.
2. Which financial statement reports a company's financial position at a specific point in time?
A. Income Statement
B. Statement of Retained Earnings
C. Balance Sheet
D. Statement of Cash Flows
C. Balance Sheet
Rationale: The balance sheet (or statement of financial position) is a snapshot of a
company's assets, liabilities, and equity at a specific date. The other statements cover a period
of time.
3. The accounting equation is best represented as:
A. Assets + Liabilities = Equity
B. Assets = Liabilities - Equity
C. Assets = Liabilities + Equity
D. Equity = Assets + Liabilities
, C. Assets = Liabilities + Equity
Rationale: This is the fundamental accounting equation. A company's resources (assets) are
financed by either debt (liabilities) or owner's claims (equity).
4. Which of the following is an example of an asset?
A. Accounts Payable
B. Salaries Expense
C. Common Stock
D. Prepaid Rent
D. Prepaid Rent
Rationale: Prepaid rent is a future economic benefit owned by the company, making it an
asset. Accounts Payable is a liability, Salaries Expense is an expense, and Common Stock is
equity.
5. A company's owner invests $50,000 cash into the business. What is the effect on the
accounting equation?
A. Assets increase, Liabilities increase.
B. Assets increase, Equity increases.
C. Assets decrease, Equity decreases.
D. Assets increase, Assets decrease.
B. Assets increase, Equity increases.
Rationale: The company receives cash (Asset increases). The owner's claim on the business
increases (Equity increases via Common Stock).
6. Which financial statement reports revenues and expenses over a period of time?
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Retained Earnings
B. Income Statement
Rationale: The income statement reports a company's financial performance (revenues and
expenses) over a specific period, such as a month or a year.
7. Net income is calculated as:
A. Revenues + Expenses
B. Revenues - Expenses
C. Assets - Liabilities
D. Cash Inflows - Cash Outflows
, B. Revenues - Expenses
Rationale: Net income (or net loss) is the result of subtracting total expenses from total
revenues for a period.
8. Which of the following is a liability?
A. Accounts Receivable
B. Unearned Revenue
C. Equipment
D. Retained Earnings
B. Unearned Revenue
Rationale: Unearned revenue represents a company's obligation to provide goods or
services in the future for which it has already been paid. It is a liability.
9. The statement of retained earnings explains the changes in:
A. Cash from operating, investing, and financing activities.
B. Assets, liabilities, and equity.
C. Revenues, expenses, and dividends.
D. Retained earnings from net income and dividends.
D. Retained earnings from net income and dividends.
Rationale: This statement reconciles the beginning balance of retained earnings with the
ending balance by adding net income and subtracting dividends.
10. Which of the following is an expense?
A. Payment of dividends
B. Purchase of equipment
C. Cost of Goods Sold
D. Repayment of a loan
C. Cost of Goods Sold
Rationale: Cost of Goods Sold is the cost of inventory sold to customers during a period,
making it a primary expense. The other options are asset purchases, dividends, or liability
reductions.
11. Select ALL that apply. Which of the following are considered external users of accounting
information?
A. Investors
B. Marketing managers
C. Creditors
, D. Internal auditors
E. Government agencies
A, C, E
Rationale: Investors (A), creditors (C), and government agencies (E) are external parties.
Marketing managers (B) and internal auditors (D) are internal users.
12. The assumption that a business will continue to operate long enough to carry out its
objectives is called:
A. Monetary Unit Assumption
B. Going Concern Assumption
C. Time Period Assumption
D. Economic Entity Assumption
B. Going Concern Assumption
Rationale: The going concern assumption assumes a business will continue to operate
indefinitely, justifying the use of historical cost for many assets.
13. A company reports total assets of $500,000 and total liabilities of $200,000. What is the
amount of owner's equity?
A. $700,000
B. $300,000
C. $500,000
D. $200,000
B. $300,000
**Rationale:** Using the accounting equation (Assets = Liabilities + Equity), Equity = Assets -
Liabilities. $500,000 - $200,000 = $300,000.
14. Which of the following transactions increases an asset and increases a liability?
A. Paying cash for supplies.
B. Purchasing equipment on account.
C. Receiving cash from a customer for services performed.
D. Paying off a loan with cash.
B. Purchasing equipment on account.
Rationale: Equipment (Asset) increases, and Accounts Payable (Liability) increases.
15. The principle that requires expenses to be reported in the same period as the revenues
they helped generate is the:
A. Revenue Recognition Principle
