WGU D196 Principles of Financial and
Managerial Accounting | Question
Practice Exam | MCQs with Rationales |
Actual Exam Questions 2026/2027
Question 1 Which of the following is the primary purpose of financial accounting?
A. To provide information for internal decision-making B. To prepare tax returns for the
IRS C. To provide useful information to external users such as investors and creditors D.
To assist managers in controlling operations
Answer: C
Rationale: Financial accounting focuses on preparing general-purpose financial
statements for external users (investors, creditors, regulators).
Question 2 The accounting equation is most commonly expressed as:
A. Assets = Liabilities + Equity B. Revenues – Expenses = Net Income C. Assets +
Liabilities = Equity D. Equity = Assets – Revenues
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities + Owner’s Equity
(or Stockholders’ Equity in corporations).
Question 3 Which of the following accounts is considered a permanent (real) account?
A. Service Revenue B. Salaries Expense C. Accounts Payable D. Dividends
Answer: C
Rationale: Permanent accounts (assets, liabilities, equity) carry their balances forward to
the next period. Temporary accounts (revenues, expenses, dividends) are closed at the
end of the period.
,Question 4 Under accrual basis accounting, when should revenue be recognized?
A. When cash is received B. When the invoice is sent C. When the performance
obligation is satisfied D. At the end of the fiscal year
Answer: C
Rationale: Revenue is recognized when control of goods/services transfers to the
customer (ASC 606 / revenue recognition principle).
Question 5 Which financial statement reports revenues and expenses for a period of
time?
A. Balance Sheet B. Statement of Retained Earnings C. Income Statement D. Statement
of Cash Flows
Answer: C
Rationale: The Income Statement (Statement of Operations) shows operating
performance (revenues – expenses) over a specific period.
Question 6 A company purchases equipment for $50,000 cash. How is this transaction
recorded?
A. Increase Equipment $50,000, decrease Cash $50,000 B. Increase Cash $50,000,
increase Equipment $50,000 C. Increase Expense $50,000, decrease Cash $50,000 D.
No entry is required
Answer: A
Rationale: Purchasing equipment is an asset exchange: one asset (Equipment)
increases, another asset (Cash) decreases.
Question 7 Which of the following is a current asset?
A. Land held for future expansion B. Prepaid insurance C. Equipment with 10-year useful
life D. Mortgage payable due in 5 years
Answer: B
Rationale: Prepaid insurance is a current asset because it will be used up within one
year or the operating cycle.
Question 8 The matching principle requires that:
, A. Revenues be recorded when cash is received B. Expenses be recorded in the same
period as the revenues they help generate C. Assets be recorded at historical cost D.
Dividends be paid at least once per year
Answer: B
Rationale: Matching principle (expense recognition) states expenses should be recorded
in the same period as the related revenues.
Question 9 Which account appears on the balance sheet?
A. Service Revenue B. Salaries Expense C. Retained Earnings D. Dividends
Answer: C
Rationale: Retained Earnings is a permanent equity account reported on the balance
sheet. Revenues, expenses, and dividends are temporary accounts closed to Retained
Earnings.
Question 10 When a company collects cash from a customer for services previously
recorded on account, the transaction is recorded as:
A. Increase Cash, increase Revenue B. Increase Cash, decrease Accounts Receivable
C. Decrease Accounts Receivable, decrease Revenue D. No entry required
Answer: B
Rationale: Collection of accounts receivable increases cash and decreases the
receivable (no effect on revenue, as it was already recognized).
Question 11 Which of the following is a period cost?
A. Factory supervisor’s salary B. Direct materials used in production C. Sales
commissions D. Depreciation on manufacturing equipment
Answer: C
Rationale: Period costs (selling & administrative) are expensed in the period incurred.
Product costs (DM, DL, MOH) are inventoried.
Question 12 Under the perpetual inventory system, when merchandise is sold:
Managerial Accounting | Question
Practice Exam | MCQs with Rationales |
Actual Exam Questions 2026/2027
Question 1 Which of the following is the primary purpose of financial accounting?
A. To provide information for internal decision-making B. To prepare tax returns for the
IRS C. To provide useful information to external users such as investors and creditors D.
To assist managers in controlling operations
Answer: C
Rationale: Financial accounting focuses on preparing general-purpose financial
statements for external users (investors, creditors, regulators).
Question 2 The accounting equation is most commonly expressed as:
A. Assets = Liabilities + Equity B. Revenues – Expenses = Net Income C. Assets +
Liabilities = Equity D. Equity = Assets – Revenues
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities + Owner’s Equity
(or Stockholders’ Equity in corporations).
Question 3 Which of the following accounts is considered a permanent (real) account?
A. Service Revenue B. Salaries Expense C. Accounts Payable D. Dividends
Answer: C
Rationale: Permanent accounts (assets, liabilities, equity) carry their balances forward to
the next period. Temporary accounts (revenues, expenses, dividends) are closed at the
end of the period.
,Question 4 Under accrual basis accounting, when should revenue be recognized?
A. When cash is received B. When the invoice is sent C. When the performance
obligation is satisfied D. At the end of the fiscal year
Answer: C
Rationale: Revenue is recognized when control of goods/services transfers to the
customer (ASC 606 / revenue recognition principle).
Question 5 Which financial statement reports revenues and expenses for a period of
time?
A. Balance Sheet B. Statement of Retained Earnings C. Income Statement D. Statement
of Cash Flows
Answer: C
Rationale: The Income Statement (Statement of Operations) shows operating
performance (revenues – expenses) over a specific period.
Question 6 A company purchases equipment for $50,000 cash. How is this transaction
recorded?
A. Increase Equipment $50,000, decrease Cash $50,000 B. Increase Cash $50,000,
increase Equipment $50,000 C. Increase Expense $50,000, decrease Cash $50,000 D.
No entry is required
Answer: A
Rationale: Purchasing equipment is an asset exchange: one asset (Equipment)
increases, another asset (Cash) decreases.
Question 7 Which of the following is a current asset?
A. Land held for future expansion B. Prepaid insurance C. Equipment with 10-year useful
life D. Mortgage payable due in 5 years
Answer: B
Rationale: Prepaid insurance is a current asset because it will be used up within one
year or the operating cycle.
Question 8 The matching principle requires that:
, A. Revenues be recorded when cash is received B. Expenses be recorded in the same
period as the revenues they help generate C. Assets be recorded at historical cost D.
Dividends be paid at least once per year
Answer: B
Rationale: Matching principle (expense recognition) states expenses should be recorded
in the same period as the related revenues.
Question 9 Which account appears on the balance sheet?
A. Service Revenue B. Salaries Expense C. Retained Earnings D. Dividends
Answer: C
Rationale: Retained Earnings is a permanent equity account reported on the balance
sheet. Revenues, expenses, and dividends are temporary accounts closed to Retained
Earnings.
Question 10 When a company collects cash from a customer for services previously
recorded on account, the transaction is recorded as:
A. Increase Cash, increase Revenue B. Increase Cash, decrease Accounts Receivable
C. Decrease Accounts Receivable, decrease Revenue D. No entry required
Answer: B
Rationale: Collection of accounts receivable increases cash and decreases the
receivable (no effect on revenue, as it was already recognized).
Question 11 Which of the following is a period cost?
A. Factory supervisor’s salary B. Direct materials used in production C. Sales
commissions D. Depreciation on manufacturing equipment
Answer: C
Rationale: Period costs (selling & administrative) are expensed in the period incurred.
Product costs (DM, DL, MOH) are inventoried.
Question 12 Under the perpetual inventory system, when merchandise is sold:
