WGU Accounting Study Guide – Advanced
Practice Exam & Comprehensive Review (2026
Updated)
Document 7: WGU Accounting Study Guide –
Advanced Practice Exam & Comprehensive
Review
Instructions: This comprehensive practice exam contains 100 questions covering key accounting
principles, financial statements, managerial accounting, and advanced topics. Select the best answer.
Answers are in bold and rationales are in italic.
1. Which of the following is the fundamental accounting equation?
A) Assets = Liabilities + Owner's Equity
B) Assets = Liabilities - Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Revenues = Expenses + Net Income
Answer: A
Rationale: The fundamental accounting equation states that a company's assets are financed by its
liabilities and owner's equity. Assets = Liabilities + Owner's Equity is the foundation of double-entry
bookkeeping.
2. 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
Answer: C
Rationale: The Balance Sheet, also known as the Statement of Financial Position, provides a snapshot of
a company's assets, liabilities, and equity at a specific date. The Income Statement covers a period of
time.
3. What is the primary purpose of the Income Statement?
A) To show the financial position at a point in time
B) To report revenues, expenses, and net income over a period
,C) To show changes in equity
D) To report cash flows
Answer: B
Rationale: The Income Statement reports a company's financial performance over a specific accounting
period, summarizing revenues, expenses, and net income or loss.
4. Which of the following is considered a current asset?
A) Accounts Payable
B) Equipment
C) Inventory
D) Bonds Payable
Answer: C
Rationale: Current assets are assets that are expected to be converted to cash, sold, or consumed within
one year. Inventory is a current asset. Equipment is a long-term asset, and Accounts Payable and Bonds
Payable are liabilities.
5. Which of the following is an example of a liability?
A) Cash
B) Accounts Receivable
C) Retained Earnings
D) Accounts Payable
Answer: D
Rationale: Liabilities represent debts or obligations owed by the company. Accounts Payable is a liability
representing amounts owed to suppliers for goods or services purchased on credit.
6. What is the effect of a company earning revenue on the accounting equation?
A) Assets increase and owner's equity increases
B) Liabilities increase and owner's equity decreases
C) Assets decrease and liabilities increase
D) Assets increase and liabilities decrease
Answer: A
Rationale: When a company earns revenue, it typically receives cash or accounts receivable (assets
increase), which also increases owner's equity (through retained earnings).
7. What is the effect of a company paying dividends to shareholders?
A) Assets increase and owner's equity increases
B) Assets decrease and owner's equity decreases
C) Liabilities increase and owner's equity increases
D) Assets increase and liabilities decrease
, Answer: B
Rationale: Paying dividends reduces cash (assets) and reduces retained earnings (owner's equity).
8. Which accounting method records revenue when earned and expenses when incurred, regardless of
when cash is received or paid?
A) Cash Basis Accounting
B) Accrual Basis Accounting
C) Hybrid Accounting
D) Modified Cash Basis
Answer: B
Rationale: Accrual basis accounting matches revenues with expenses in the period they occur, following
the matching principle. Cash basis records transactions when cash changes hands.
9. Which of the following is a contra-asset account?
A) Accounts Receivable
B) Accumulated Depreciation
C) Cash
D) Prepaid Expenses
Answer: B
Rationale: Accumulated Depreciation is a contra-asset account, meaning it has a normal credit balance
and is used to reduce the book value of the related asset (Property, Plant, and Equipment).
10. What is depreciation?
A) The process of increasing the value of an asset
B) The allocation of the cost of a tangible asset over its useful life
C) The process of recording revenue
D) The recording of cash receipts
Answer: B
Rationale: Depreciation is the systematic allocation of the cost of a tangible asset (like equipment or
buildings) over its estimated useful life.
11. Which of the following is an operating activity in the Statement of Cash Flows?
A) Issuance of common stock
B) Purchase of equipment
C) Payment to suppliers
D) Repayment of debt
Answer: C
Rationale: Operating activities include transactions related to the primary operations of the business,
such as cash receipts from customers and cash payments to suppliers and employees.
Practice Exam & Comprehensive Review (2026
Updated)
Document 7: WGU Accounting Study Guide –
Advanced Practice Exam & Comprehensive
Review
Instructions: This comprehensive practice exam contains 100 questions covering key accounting
principles, financial statements, managerial accounting, and advanced topics. Select the best answer.
Answers are in bold and rationales are in italic.
1. Which of the following is the fundamental accounting equation?
A) Assets = Liabilities + Owner's Equity
B) Assets = Liabilities - Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Revenues = Expenses + Net Income
Answer: A
Rationale: The fundamental accounting equation states that a company's assets are financed by its
liabilities and owner's equity. Assets = Liabilities + Owner's Equity is the foundation of double-entry
bookkeeping.
2. 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
Answer: C
Rationale: The Balance Sheet, also known as the Statement of Financial Position, provides a snapshot of
a company's assets, liabilities, and equity at a specific date. The Income Statement covers a period of
time.
3. What is the primary purpose of the Income Statement?
A) To show the financial position at a point in time
B) To report revenues, expenses, and net income over a period
,C) To show changes in equity
D) To report cash flows
Answer: B
Rationale: The Income Statement reports a company's financial performance over a specific accounting
period, summarizing revenues, expenses, and net income or loss.
4. Which of the following is considered a current asset?
A) Accounts Payable
B) Equipment
C) Inventory
D) Bonds Payable
Answer: C
Rationale: Current assets are assets that are expected to be converted to cash, sold, or consumed within
one year. Inventory is a current asset. Equipment is a long-term asset, and Accounts Payable and Bonds
Payable are liabilities.
5. Which of the following is an example of a liability?
A) Cash
B) Accounts Receivable
C) Retained Earnings
D) Accounts Payable
Answer: D
Rationale: Liabilities represent debts or obligations owed by the company. Accounts Payable is a liability
representing amounts owed to suppliers for goods or services purchased on credit.
6. What is the effect of a company earning revenue on the accounting equation?
A) Assets increase and owner's equity increases
B) Liabilities increase and owner's equity decreases
C) Assets decrease and liabilities increase
D) Assets increase and liabilities decrease
Answer: A
Rationale: When a company earns revenue, it typically receives cash or accounts receivable (assets
increase), which also increases owner's equity (through retained earnings).
7. What is the effect of a company paying dividends to shareholders?
A) Assets increase and owner's equity increases
B) Assets decrease and owner's equity decreases
C) Liabilities increase and owner's equity increases
D) Assets increase and liabilities decrease
, Answer: B
Rationale: Paying dividends reduces cash (assets) and reduces retained earnings (owner's equity).
8. Which accounting method records revenue when earned and expenses when incurred, regardless of
when cash is received or paid?
A) Cash Basis Accounting
B) Accrual Basis Accounting
C) Hybrid Accounting
D) Modified Cash Basis
Answer: B
Rationale: Accrual basis accounting matches revenues with expenses in the period they occur, following
the matching principle. Cash basis records transactions when cash changes hands.
9. Which of the following is a contra-asset account?
A) Accounts Receivable
B) Accumulated Depreciation
C) Cash
D) Prepaid Expenses
Answer: B
Rationale: Accumulated Depreciation is a contra-asset account, meaning it has a normal credit balance
and is used to reduce the book value of the related asset (Property, Plant, and Equipment).
10. What is depreciation?
A) The process of increasing the value of an asset
B) The allocation of the cost of a tangible asset over its useful life
C) The process of recording revenue
D) The recording of cash receipts
Answer: B
Rationale: Depreciation is the systematic allocation of the cost of a tangible asset (like equipment or
buildings) over its estimated useful life.
11. Which of the following is an operating activity in the Statement of Cash Flows?
A) Issuance of common stock
B) Purchase of equipment
C) Payment to suppliers
D) Repayment of debt
Answer: C
Rationale: Operating activities include transactions related to the primary operations of the business,
such as cash receipts from customers and cash payments to suppliers and employees.
