WGU D774 Introduction to Business Accounting OA
Study Guide & Pass Pack
Ace your Western Governors University D774 Objective Assessment on your very first
attempt with this high-yield, comprehensive study resource. This guide delivers clear,
fluff-free breakdowns of the core competencies you will face, including the basic
accounting equation, financial vs. managerial reporting, and cost-volume-profit (CVP)
analysis. Packed with exact GAAP rules, mixed cost calculations, and operational
examples, it is the perfect tool to maximize your study efficiency and secure your pre-
assessment pass.
QUESTION 1
What is the fundamental accounting equation?
A) Assets = Revenue – Expenses
B) Assets = Liabilities + Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Revenue = Expenses + Net Income
Correct Answer: B) Assets = Liabilities + Owner's Equity
Rationale: The fundamental accounting equation is Assets = Liabilities + Owner's Equity.
This equation is the foundation of double-entry bookkeeping and underpins the balance
sheet, ensuring that a company's resources (assets) are always financed by either debt
(liabilities) or owner investment (equity).
QUESTION 2
Which side of an account increases assets and expenses?
A) Credit (Cr)
B) Debit (Dr)
C) Both debit and credit
D) Neither
,Correct Answer: B) Debit (Dr)
Rationale: Assets and expenses have a normal debit balance, meaning they increase when
debited and decrease when credited. Liabilities, equity, and revenues have a normal credit
balance. This is a core rule of double-entry accounting.
QUESTION 3
Which side of an account increases liabilities, equity, and revenues?
A) Debit (Dr)
B) Credit (Cr)
C) Both debit and credit
D) Neither
Correct Answer: B) Credit (Cr)
Rationale: Liabilities, equity, and revenues have a normal credit balance, meaning they
increase when credited and decrease when debited. Assets and expenses increase with
debits. Understanding normal balances is essential for recording transactions correctly.
QUESTION 4
Which account would normally have a debit balance?
A) Accounts payable
B) Service revenue
C) Cash
D) Unearned revenue
Correct Answer: C) Cash
Rationale: Cash is an asset account, and assets normally carry a debit balance. Accounts
payable and unearned revenue are liabilities (credit balances), and service revenue is a
revenue account (credit balance).
QUESTION 5
Which journal entry records the owner investing cash into the business?
,A) Debit Cash, Credit Revenue
B) Debit Cash, Credit Owner's Equity
C) Debit Expense, Credit Cash
D) Debit Cash, Credit Liability
Correct Answer: B) Debit Cash, Credit Owner's Equity
Rationale: When an owner invests cash into the business, the company receives cash (an
asset) and creates equity for the owner. Cash increases with a debit, and Owner's Equity
increases with a credit. This increases both sides of the accounting equation.
QUESTION 6
If total debits equal total credits, the account is:
A) Overstated
B) Understated
C) Balanced
D) Closed
Correct Answer: C) Balanced
Rationale: In double-entry accounting, the sum of all debits must always equal the sum of
all credits in a balanced system. This is how the accounting system maintains the
fundamental equation (Assets = Liabilities + Equity). If debits do not equal credits, an error
exists.
QUESTION 7
Which financial statement shows 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 Owner's Equity
Correct Answer: C) Balance Sheet
Rationale: The balance sheet reports a company's assets, liabilities, and owner's equity at a
, specific point in time (a "snapshot"). The income statement, cash flow statement, and
statement of owner's equity all cover a period of time.
QUESTION 8
What is the definition of a liability?
A) Something the company owns
B) Something the company owes to creditors
C) The owner's claim to assets
D) Revenue earned from operations
Correct Answer: B) Something the company owes to creditors
Rationale: A liability is a debt or obligation that a company owes to outside parties
(creditors). Assets are what the company owns, and equity is the owner's residual claim
after liabilities are subtracted from assets.
QUESTION 9
What is the definition of an asset?
A) Something the company owes
B) Something the company owns of value
C) The owner's claim to assets
D) Revenue earned from operations
Correct Answer: B) Something the company owns of value
Rationale: An asset is a resource with economic value that a company owns or controls
with the expectation that it will provide future benefit. Assets include cash, inventory,
equipment, and accounts receivable.
QUESTION 10
Owner's equity represents:
Study Guide & Pass Pack
Ace your Western Governors University D774 Objective Assessment on your very first
attempt with this high-yield, comprehensive study resource. This guide delivers clear,
fluff-free breakdowns of the core competencies you will face, including the basic
accounting equation, financial vs. managerial reporting, and cost-volume-profit (CVP)
analysis. Packed with exact GAAP rules, mixed cost calculations, and operational
examples, it is the perfect tool to maximize your study efficiency and secure your pre-
assessment pass.
QUESTION 1
What is the fundamental accounting equation?
A) Assets = Revenue – Expenses
B) Assets = Liabilities + Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Revenue = Expenses + Net Income
Correct Answer: B) Assets = Liabilities + Owner's Equity
Rationale: The fundamental accounting equation is Assets = Liabilities + Owner's Equity.
This equation is the foundation of double-entry bookkeeping and underpins the balance
sheet, ensuring that a company's resources (assets) are always financed by either debt
(liabilities) or owner investment (equity).
QUESTION 2
Which side of an account increases assets and expenses?
A) Credit (Cr)
B) Debit (Dr)
C) Both debit and credit
D) Neither
,Correct Answer: B) Debit (Dr)
Rationale: Assets and expenses have a normal debit balance, meaning they increase when
debited and decrease when credited. Liabilities, equity, and revenues have a normal credit
balance. This is a core rule of double-entry accounting.
QUESTION 3
Which side of an account increases liabilities, equity, and revenues?
A) Debit (Dr)
B) Credit (Cr)
C) Both debit and credit
D) Neither
Correct Answer: B) Credit (Cr)
Rationale: Liabilities, equity, and revenues have a normal credit balance, meaning they
increase when credited and decrease when debited. Assets and expenses increase with
debits. Understanding normal balances is essential for recording transactions correctly.
QUESTION 4
Which account would normally have a debit balance?
A) Accounts payable
B) Service revenue
C) Cash
D) Unearned revenue
Correct Answer: C) Cash
Rationale: Cash is an asset account, and assets normally carry a debit balance. Accounts
payable and unearned revenue are liabilities (credit balances), and service revenue is a
revenue account (credit balance).
QUESTION 5
Which journal entry records the owner investing cash into the business?
,A) Debit Cash, Credit Revenue
B) Debit Cash, Credit Owner's Equity
C) Debit Expense, Credit Cash
D) Debit Cash, Credit Liability
Correct Answer: B) Debit Cash, Credit Owner's Equity
Rationale: When an owner invests cash into the business, the company receives cash (an
asset) and creates equity for the owner. Cash increases with a debit, and Owner's Equity
increases with a credit. This increases both sides of the accounting equation.
QUESTION 6
If total debits equal total credits, the account is:
A) Overstated
B) Understated
C) Balanced
D) Closed
Correct Answer: C) Balanced
Rationale: In double-entry accounting, the sum of all debits must always equal the sum of
all credits in a balanced system. This is how the accounting system maintains the
fundamental equation (Assets = Liabilities + Equity). If debits do not equal credits, an error
exists.
QUESTION 7
Which financial statement shows 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 Owner's Equity
Correct Answer: C) Balance Sheet
Rationale: The balance sheet reports a company's assets, liabilities, and owner's equity at a
, specific point in time (a "snapshot"). The income statement, cash flow statement, and
statement of owner's equity all cover a period of time.
QUESTION 8
What is the definition of a liability?
A) Something the company owns
B) Something the company owes to creditors
C) The owner's claim to assets
D) Revenue earned from operations
Correct Answer: B) Something the company owes to creditors
Rationale: A liability is a debt or obligation that a company owes to outside parties
(creditors). Assets are what the company owns, and equity is the owner's residual claim
after liabilities are subtracted from assets.
QUESTION 9
What is the definition of an asset?
A) Something the company owes
B) Something the company owns of value
C) The owner's claim to assets
D) Revenue earned from operations
Correct Answer: B) Something the company owns of value
Rationale: An asset is a resource with economic value that a company owns or controls
with the expectation that it will provide future benefit. Assets include cash, inventory,
equipment, and accounts receivable.
QUESTION 10
Owner's equity represents:
