WGU D116 PRINCIPLES OF ACCOUNTING
EXAM QUESTIONS AND 100% FULLY
CORRECT ANSWERS (NEW)
300 PRACTICE QUESTIONS AND ANSWERS
1. What is accounting? Accounting is the process of identifying, measuring,
and communicating economic information about an organization to permit
informed judgments and decisions by users of the information.
2. What are the three main activities of accounting? Identifying, recording,
and communicating economic events and transactions.
3. Who are the external users of accounting information? Investors,
creditors, customers, suppliers, regulatory agencies, labor unions, and the
general public.
4. Who are the internal users of accounting information? Management,
employees, and board of directors.
5. What is the primary purpose of financial accounting? To provide
information to external users for decision-making purposes.
6. What is the primary purpose of managerial accounting? To provide
information to internal users for planning, controlling, and decision-making.
7. What are the four basic financial statements? Income Statement, Balance
Sheet, Statement of Owner's Equity, and Cash Flow Statement.
8. What is the accounting equation? Assets = Liabilities + Owner's Equity
9. What are assets? Resources owned by a business that have monetary value
and are expected to provide future benefits.
10. What are liabilities? Debts or obligations of a business that must be paid in
the future.
,11. What is owner's equity? The owner's claim on the assets of the business;
the difference between assets and liabilities.
12. What is revenue? Income earned by a business from its normal operations.
13. What are expenses? Costs incurred by a business to generate revenue.
14. What is net income? Revenue minus expenses; the profit of a business.
15. What is a net loss? When expenses exceed revenue; the business has lost
money.
Chapter 2: The Accounting Cycle
16. What is the accounting cycle? The series of steps followed by accountants
to prepare financial statements.
17. What are the steps in the accounting cycle?
1. Identify transactions, 2. Journalize, 3. Post to ledger, 4. Prepare trial
balance, 5. Adjusting entries, 6. Adjusted trial balance, 7. Financial
statements, 8. Closing entries, 9. Post-closing trial balance.
18. What is a journal? A chronological record of all transactions affecting a
business.
19. What is a ledger? A collection of accounts that shows the changes in each
account and the account balances.
20. What is a trial balance? A list of all accounts and their balances at a
specific point in time to verify that debits equal credits.
21. What are adjusting entries? Entries made at the end of an accounting
period to update accounts before preparing financial statements.
22. What are closing entries? Entries made at the end of an accounting period
to transfer temporary account balances to permanent accounts.
23. What is a post-closing trial balance? A trial balance prepared after closing
entries to verify that debits equal credits and that all temporary accounts have
zero balances.
24. What is an account? A record of increases and decreases in a specific
asset, liability, equity, revenue, or expense.
25. What is a T-account? A simplified form of an account that looks like the
letter T, used for analyzing transactions.
26. What is the normal balance of an asset account? Debit balance.
, 27. What is the normal balance of a liability account? Credit balance.
28. What is the normal balance of an equity account? Credit balance.
29. What is the normal balance of a revenue account? Credit balance.
30. What is the normal balance of an expense account? Debit balance.
Chapter 3: Adjusting Entries
31. Why are adjusting entries necessary? To ensure that revenues and
expenses are recorded in the proper period and that assets and liabilities are
properly stated.
32. What are the four types of adjusting entries? Prepaid expenses, unearned
revenues, accrued expenses, and accrued revenues.
33. What is a prepaid expense? An expense paid in advance that benefits
future periods.
34. What is an unearned revenue? Revenue received in advance before it is
earned.
35. What is an accrued expense? An expense that has been incurred but not
yet paid.
36. What is an accrued revenue? Revenue that has been earned but not yet
received.
37. What is depreciation? The allocation of the cost of a long-term asset over
its useful life.
38. What is accumulated depreciation? A contra-asset account that shows the
total depreciation taken on an asset since it was acquired.
39. What is book value? The difference between an asset's cost and its
accumulated depreciation.
40. What is the matching principle? Expenses should be matched with the
revenues they help generate in the same accounting period.
41. What is the revenue recognition principle? Revenue should be recognized
when it is earned, regardless of when cash is received.
42. What is an adjusting entry for prepaid insurance? Debit Insurance
Expense, Credit Prepaid Insurance.
43. What is an adjusting entry for accrued salaries? Debit Salaries Expense,
Credit Salaries Payable.
EXAM QUESTIONS AND 100% FULLY
CORRECT ANSWERS (NEW)
300 PRACTICE QUESTIONS AND ANSWERS
1. What is accounting? Accounting is the process of identifying, measuring,
and communicating economic information about an organization to permit
informed judgments and decisions by users of the information.
2. What are the three main activities of accounting? Identifying, recording,
and communicating economic events and transactions.
3. Who are the external users of accounting information? Investors,
creditors, customers, suppliers, regulatory agencies, labor unions, and the
general public.
4. Who are the internal users of accounting information? Management,
employees, and board of directors.
5. What is the primary purpose of financial accounting? To provide
information to external users for decision-making purposes.
6. What is the primary purpose of managerial accounting? To provide
information to internal users for planning, controlling, and decision-making.
7. What are the four basic financial statements? Income Statement, Balance
Sheet, Statement of Owner's Equity, and Cash Flow Statement.
8. What is the accounting equation? Assets = Liabilities + Owner's Equity
9. What are assets? Resources owned by a business that have monetary value
and are expected to provide future benefits.
10. What are liabilities? Debts or obligations of a business that must be paid in
the future.
,11. What is owner's equity? The owner's claim on the assets of the business;
the difference between assets and liabilities.
12. What is revenue? Income earned by a business from its normal operations.
13. What are expenses? Costs incurred by a business to generate revenue.
14. What is net income? Revenue minus expenses; the profit of a business.
15. What is a net loss? When expenses exceed revenue; the business has lost
money.
Chapter 2: The Accounting Cycle
16. What is the accounting cycle? The series of steps followed by accountants
to prepare financial statements.
17. What are the steps in the accounting cycle?
1. Identify transactions, 2. Journalize, 3. Post to ledger, 4. Prepare trial
balance, 5. Adjusting entries, 6. Adjusted trial balance, 7. Financial
statements, 8. Closing entries, 9. Post-closing trial balance.
18. What is a journal? A chronological record of all transactions affecting a
business.
19. What is a ledger? A collection of accounts that shows the changes in each
account and the account balances.
20. What is a trial balance? A list of all accounts and their balances at a
specific point in time to verify that debits equal credits.
21. What are adjusting entries? Entries made at the end of an accounting
period to update accounts before preparing financial statements.
22. What are closing entries? Entries made at the end of an accounting period
to transfer temporary account balances to permanent accounts.
23. What is a post-closing trial balance? A trial balance prepared after closing
entries to verify that debits equal credits and that all temporary accounts have
zero balances.
24. What is an account? A record of increases and decreases in a specific
asset, liability, equity, revenue, or expense.
25. What is a T-account? A simplified form of an account that looks like the
letter T, used for analyzing transactions.
26. What is the normal balance of an asset account? Debit balance.
, 27. What is the normal balance of a liability account? Credit balance.
28. What is the normal balance of an equity account? Credit balance.
29. What is the normal balance of a revenue account? Credit balance.
30. What is the normal balance of an expense account? Debit balance.
Chapter 3: Adjusting Entries
31. Why are adjusting entries necessary? To ensure that revenues and
expenses are recorded in the proper period and that assets and liabilities are
properly stated.
32. What are the four types of adjusting entries? Prepaid expenses, unearned
revenues, accrued expenses, and accrued revenues.
33. What is a prepaid expense? An expense paid in advance that benefits
future periods.
34. What is an unearned revenue? Revenue received in advance before it is
earned.
35. What is an accrued expense? An expense that has been incurred but not
yet paid.
36. What is an accrued revenue? Revenue that has been earned but not yet
received.
37. What is depreciation? The allocation of the cost of a long-term asset over
its useful life.
38. What is accumulated depreciation? A contra-asset account that shows the
total depreciation taken on an asset since it was acquired.
39. What is book value? The difference between an asset's cost and its
accumulated depreciation.
40. What is the matching principle? Expenses should be matched with the
revenues they help generate in the same accounting period.
41. What is the revenue recognition principle? Revenue should be recognized
when it is earned, regardless of when cash is received.
42. What is an adjusting entry for prepaid insurance? Debit Insurance
Expense, Credit Prepaid Insurance.
43. What is an adjusting entry for accrued salaries? Debit Salaries Expense,
Credit Salaries Payable.
