WGU D196 Principles of Financial & Managerial Accounting Exam Review
and Study Guide for Western Governors University Students | Financial
Statements, Accounting Cycle, Cost Behavior, Budgeting, Break-Even
Analysis, Managerial Decision-Making, Variance Analysis, and Practice
Questions with Detailed Rationales | Updated 2026 Assessment Prep
QUESTION 1
Which financial statement reports a company's financial position at a specific point in
time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Correct Answer: C
RATIONALE: The balance sheet (also called the statement of financial position) reports
assets, liabilities, and equity as of a specific date, showing the company's financial
position at a point in time. The income statement and statement of cash flows report
activities over a period, while the statement of retained earnings shows changes in
retained earnings over time.
QUESTION 2
Under accrual accounting, when should revenue be recognized?
A) When cash is received from the customer
B) When goods are delivered or services are performed, regardless of cash receipt
C) At the end of the accounting period
D) When the customer places an order
Correct Answer: B
RATIONALE: The revenue recognition principle under accrual accounting requires
revenue to be recognized when it is earned (i.e., when goods are delivered or services
are performed), not necessarily when cash changes hands. This provides a more
accurate picture of financial performance than cash-basis accounting.
QUESTION 3
Which inventory costing method assumes that the oldest inventory items are sold first?
A) LIFO (Last-In, First-Out)
B) FIFO (First-In, First-Out)
C) Weighted Average Cost
D) Specific Identification
Correct Answer: B
RATIONALE: FIFO assumes that the first items purchased (oldest inventory) are the first
items sold. This method typically results in higher ending inventory values and lower
cost of goods sold during periods of rising prices compared to LIFO.
QUESTION 4
A company purchases equipment for $50,000 with an estimated useful life of 5 years
,and no salvage value. Using straight-line depreciation, what is the annual depreciation
expense?
A) $5,000
B) $10,000
C) $12,500
D) $50,000
Correct Answer: B
RATIONALE: Straight-line depreciation = (Cost - Salvage Value) ÷ Useful Life = ($50,000 -
$0) ÷ 5 = $10,000 per year. This method allocates the cost of the asset evenly over its
useful life.
QUESTION 5
Which of the following is a characteristic of managerial accounting?
A) Must follow GAAP
B) Primarily intended for external users
C) Focuses on future-oriented decision making
D) Requires audited financial statements
Correct Answer: C
RATIONALE: Managerial accounting provides internal reports for managers to plan,
control, and make decisions. It is future-oriented, not bound by GAAP, and designed for
internal users rather than external stakeholders like investors or regulators.
QUESTION 6
The accounting equation is correctly stated as:
A) Assets + Liabilities = Equity
B) Assets = Liabilities + Equity
C) Equity = Assets - Liabilities
D) Both B and C are correct
Correct Answer: D
RATIONALE: The fundamental accounting equation is Assets = Liabilities + Equity. This
can be algebraically rearranged to Equity = Assets - Liabilities, making both statements
mathematically equivalent and correct representations of the relationship.
QUESTION 7
Which cost behavior pattern remains constant in total regardless of changes in activity
level?
A) Variable cost
B) Fixed cost
C) Mixed cost
D) Step cost
Correct Answer: B
RATIONALE: Fixed costs remain constant in total within the relevant range regardless of
, changes in activity level (e.g., rent, salaries). Variable costs change in total with activity
level, while mixed costs contain both fixed and variable components.
QUESTION 8
A company has sales of $200,000, variable costs of $120,000, and fixed costs of
$50,000. What is the contribution margin ratio?
A) 25%
B) 40%
C) 60%
D) 75%
Correct Answer: B
RATIONALE: Contribution margin = Sales - Variable Costs = $200,000 - $120,000 =
$80,000. Contribution margin ratio = Contribution Margin ÷ Sales = $80,000 ÷ $200,000
= 40%. This ratio represents the percentage of each sales dollar available to cover fixed
costs and generate profit.
QUESTION 9
Which internal control principle is demonstrated by having different employees handle
cash receipts and record keeping?
A) Documentation procedures
B) Segregation of duties
C) Independent internal verification
D) Physical controls
Correct Answer: B
RATIONALE: Segregation of duties reduces fraud risk by dividing responsibilities among
different individuals. Separating custody of assets (handling cash) from record-keeping
duties ensures that no single person controls all aspects of a transaction.
QUESTION 10
Which financial statement category includes accounts receivable?
A) Liabilities
B) Assets
C) Equity
D) Expenses
Correct Answer: B
RATIONALE: Accounts receivable represents amounts owed to the company by
customers for goods or services already delivered. It is classified as a current asset
because it is expected to be converted to cash within one year or the operating cycle.
QUESTION 11
In job order costing, costs are accumulated:
A) By time period
B) By department
and Study Guide for Western Governors University Students | Financial
Statements, Accounting Cycle, Cost Behavior, Budgeting, Break-Even
Analysis, Managerial Decision-Making, Variance Analysis, and Practice
Questions with Detailed Rationales | Updated 2026 Assessment Prep
QUESTION 1
Which financial statement reports a company's financial position at a specific point in
time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Correct Answer: C
RATIONALE: The balance sheet (also called the statement of financial position) reports
assets, liabilities, and equity as of a specific date, showing the company's financial
position at a point in time. The income statement and statement of cash flows report
activities over a period, while the statement of retained earnings shows changes in
retained earnings over time.
QUESTION 2
Under accrual accounting, when should revenue be recognized?
A) When cash is received from the customer
B) When goods are delivered or services are performed, regardless of cash receipt
C) At the end of the accounting period
D) When the customer places an order
Correct Answer: B
RATIONALE: The revenue recognition principle under accrual accounting requires
revenue to be recognized when it is earned (i.e., when goods are delivered or services
are performed), not necessarily when cash changes hands. This provides a more
accurate picture of financial performance than cash-basis accounting.
QUESTION 3
Which inventory costing method assumes that the oldest inventory items are sold first?
A) LIFO (Last-In, First-Out)
B) FIFO (First-In, First-Out)
C) Weighted Average Cost
D) Specific Identification
Correct Answer: B
RATIONALE: FIFO assumes that the first items purchased (oldest inventory) are the first
items sold. This method typically results in higher ending inventory values and lower
cost of goods sold during periods of rising prices compared to LIFO.
QUESTION 4
A company purchases equipment for $50,000 with an estimated useful life of 5 years
,and no salvage value. Using straight-line depreciation, what is the annual depreciation
expense?
A) $5,000
B) $10,000
C) $12,500
D) $50,000
Correct Answer: B
RATIONALE: Straight-line depreciation = (Cost - Salvage Value) ÷ Useful Life = ($50,000 -
$0) ÷ 5 = $10,000 per year. This method allocates the cost of the asset evenly over its
useful life.
QUESTION 5
Which of the following is a characteristic of managerial accounting?
A) Must follow GAAP
B) Primarily intended for external users
C) Focuses on future-oriented decision making
D) Requires audited financial statements
Correct Answer: C
RATIONALE: Managerial accounting provides internal reports for managers to plan,
control, and make decisions. It is future-oriented, not bound by GAAP, and designed for
internal users rather than external stakeholders like investors or regulators.
QUESTION 6
The accounting equation is correctly stated as:
A) Assets + Liabilities = Equity
B) Assets = Liabilities + Equity
C) Equity = Assets - Liabilities
D) Both B and C are correct
Correct Answer: D
RATIONALE: The fundamental accounting equation is Assets = Liabilities + Equity. This
can be algebraically rearranged to Equity = Assets - Liabilities, making both statements
mathematically equivalent and correct representations of the relationship.
QUESTION 7
Which cost behavior pattern remains constant in total regardless of changes in activity
level?
A) Variable cost
B) Fixed cost
C) Mixed cost
D) Step cost
Correct Answer: B
RATIONALE: Fixed costs remain constant in total within the relevant range regardless of
, changes in activity level (e.g., rent, salaries). Variable costs change in total with activity
level, while mixed costs contain both fixed and variable components.
QUESTION 8
A company has sales of $200,000, variable costs of $120,000, and fixed costs of
$50,000. What is the contribution margin ratio?
A) 25%
B) 40%
C) 60%
D) 75%
Correct Answer: B
RATIONALE: Contribution margin = Sales - Variable Costs = $200,000 - $120,000 =
$80,000. Contribution margin ratio = Contribution Margin ÷ Sales = $80,000 ÷ $200,000
= 40%. This ratio represents the percentage of each sales dollar available to cover fixed
costs and generate profit.
QUESTION 9
Which internal control principle is demonstrated by having different employees handle
cash receipts and record keeping?
A) Documentation procedures
B) Segregation of duties
C) Independent internal verification
D) Physical controls
Correct Answer: B
RATIONALE: Segregation of duties reduces fraud risk by dividing responsibilities among
different individuals. Separating custody of assets (handling cash) from record-keeping
duties ensures that no single person controls all aspects of a transaction.
QUESTION 10
Which financial statement category includes accounts receivable?
A) Liabilities
B) Assets
C) Equity
D) Expenses
Correct Answer: B
RATIONALE: Accounts receivable represents amounts owed to the company by
customers for goods or services already delivered. It is classified as a current asset
because it is expected to be converted to cash within one year or the operating cycle.
QUESTION 11
In job order costing, costs are accumulated:
A) By time period
B) By department
