WGU D196 Principles of Financial and
Managerial Accounting OA | 300+ Practice
Questions & Answers with Rationale |
Guaranteed Pass
BLOCK 1: ACCOUNTING FUNDAMENTALS & THE ACCOUNTING
CYCLE (Questions 1-50) 1. A small business owner reviews their
accounting records to decide whether to take out a bank loan. This is an
example of accounting fulfilling which primary role?
A) Stewardship
B) Decision-making
C) Compliance
D) Bookkeeping
B) Decision-making
Rationale: Accounting provides quantitative financial information to support
economic decision-making. While stewardship (A) involves managing resources,
the specific act of reviewing records for a loan decision is decision-making.
Compliance (C) relates to taxes/regulations, and bookkeeping (D) is just the
mechanical recording.
2. Which of the following best distinguishes financial accounting from
managerial accounting?
A) Financial accounting focuses on internal reports, while managerial focuses on
external reports.
B) Financial accounting is forward-looking, while managerial is historical.
C) Financial accounting must follow GAAP, while managerial accounting does not.
C) Financial accounting must follow GAAP, while managerial accounting does
not.
Rationale: Financial accounting is strictly regulated by GAAP for external users
(investors/creditors). Managerial accounting is for internal use and has no
mandatory rules (C). A and B are reversed; financial is historical, managerial is
forward-looking.
3. A company purchases a delivery truck for $40,000. According to the
accounting equation, how does this transaction affect the balance sheet?**
A) Assets decrease by $40,000; Liabilities increase by $40,000
B) Assets increase by $40,000; Equity increases by $40,000
C) Assets increase by $40,000 and decrease by $40,000 (net zero effect)
***C) Assets increase by $40,000 and decrease by $40,000 (net zero effect)*
Rationale: Exchanging one asset (cash) for another asset (truck) keeps the
,accounting equation (Assets = Liabilities + Equity) perfectly balanced with a net
zero change to total assets. Liabilities and Equity are unaffected unless the truck
was financed with debt.
4. 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
C) Balance Sheet
Rationale: The Balance Sheet is a "snapshot" of assets, liabilities, and equity on
a specific date (e.g., Dec 31). The Income Statement (A) and Cash Flows (B)
cover a period of time (e.g., the year ended Dec 31).
5. Revenue is recognized when:
A) Cash is received from the customer.
B) The customer places an order.
C) The performance obligation is satisfied.
D) The invoice is mailed to the customer.
C) The performance obligation is satisfied.
Rationale: Under accrual accounting (GAAP), revenue is recognized when
earned (the good/service is transferred to the customer), not when cash changes
hands (A). This is the core of the Revenue Recognition Principle.
6. If a company pays $12,000 for a 12-month insurance policy in advance, how
does this affect the accounting equation on the day of payment?
A) Assets decrease; Equity decreases
B) Assets increase; Liabilities increase
C) Assets increase and decrease (net zero)
C) Assets increase and decrease (net zero)
Rationale: Paying cash for prepaid insurance swaps one asset (Cash) for another
asset (Prepaid Insurance). Total assets stay the same. Liabilities and Equity are
unaffected until the insurance is "used up" (expensed) over time.
7. A company has $100,000 in assets and $60,000 in liabilities. What is the
owner's equity?
A) $160,000
B) $40,000
C) $60,000
D) $100,000
**B) $40,000***
*Rationale: Using the accounting equation: Assets = Liabilities + Equity.
Rearranged: Equity = Assets - Liabilities = $100,000 - $60,000 = $40,000.
,8. Which of the following is considered a "current" asset?
A) Land held for future expansion
B) Patent
C) Accounts Receivable
D) Equipment
C) Accounts Receivable
Rationale: Current assets are expected to be converted to cash, sold, or
consumed within one year. Accounts Receivable (C) fits this. Land (A), Patents
(B), and Equipment (D) are long-term (non-current) assets.
9. Accumulated Depreciation appears on the balance sheet as:
A) A liability
B) An expense
C) A contra-asset
D) An equity account
C) A contra-asset
Rationale: Accumulated Depreciation reduces the book value of fixed assets
(like equipment). It has a normal credit balance, opposing the normal debit
balance of assets, making it a contra-asset account.
10. Which of the following transactions would increase both assets and equity?
A) Purchasing inventory on credit
B) Issuing common stock for cash
C) Paying a dividend to shareholders
D) Taking out a bank loan
B) Issuing common stock for cash
Rationale: Issuing stock increases Cash (Asset) and increases Common Stock
(Equity). A increases Assets and Liabilities. C decreases Assets and Equity. D
increases Assets and Liabilities.
11. The Statement of Cash Flows is divided into which three sections?
A) Revenue, Expenses, and Net Income
B) Assets, Liabilities, and Equity
C) Operating, Investing, and Financing
D) Direct, Indirect, and Hybrid
C) Operating, Investing, and Financing
Rationale: Cash flows are classified by activity: Operating (day-to-day),
Investing (buying/selling long-term assets), and Financing (debt/equity
transactions). A and B are from the Income Statement and Balance Sheet.
12. A company sold goods to a customer on account (credit). How does this
affect the Income Statement and Balance Sheet immediately?
A) Revenue increases; Assets increase.
B) Revenue increases; Liabilities increase.
, C) Revenue increases; Assets decrease.
D) No effect until cash is collected.
A) Revenue increases; Assets increase.
Rationale: Under accrual accounting, revenue is recognized immediately. On the
Balance Sheet, Accounts Receivable (Asset) increases. On the Income Statement,
Revenue (and thus Net Income/Equity) increases.
13. Which of the following is an example of a financing activity on the
Statement of Cash Flows?
A) Paying employees' wages
B) Purchasing new equipment
C) Repaying a bank loan
D) Collecting cash from customers
C) Repaying a bank loan
Rationale: Financing activities involve debt and equity. Repaying a loan (C) is a
financing cash outflow. A and D are operating; B is investing.
14. What is the primary purpose of the Statement of Retained Earnings?
A) To show the market value of the company's stock
B) To show the changes in retained earnings over a period
C) To show the cash collected from customers
D) To show the total assets of the company
B) To show the changes in retained earnings over a period
Rationale: It bridges the Income Statement and Balance Sheet, showing
beginning retained earnings, plus net income, minus dividends, to get ending
retained earnings (which appears on the Balance Sheet).
15. A company has $500,000 in assets and $200,000 in liabilities. If it issues
$50,000 of common stock, what is the new total equity?**
A) $300,000
B) $350,000
C) $250,000
D) $400,000
***B) $350,000*
Rationale: Original Equity = 500k - 200k = 300k. Issuing stock increases equity
by 50k. New Equity = 300k + 50k = 350k. (Assets would also increase to 550k).
16. The "matching principle" states that:
A) Assets must equal liabilities plus equity.
B) Revenues are recorded when cash is received.
C) Expenses should be recorded in the same period as the revenues they helped
generate.
D) The business is separate from its owners.
C) Expenses should be recorded in the same period as the revenues they helped
Managerial Accounting OA | 300+ Practice
Questions & Answers with Rationale |
Guaranteed Pass
BLOCK 1: ACCOUNTING FUNDAMENTALS & THE ACCOUNTING
CYCLE (Questions 1-50) 1. A small business owner reviews their
accounting records to decide whether to take out a bank loan. This is an
example of accounting fulfilling which primary role?
A) Stewardship
B) Decision-making
C) Compliance
D) Bookkeeping
B) Decision-making
Rationale: Accounting provides quantitative financial information to support
economic decision-making. While stewardship (A) involves managing resources,
the specific act of reviewing records for a loan decision is decision-making.
Compliance (C) relates to taxes/regulations, and bookkeeping (D) is just the
mechanical recording.
2. Which of the following best distinguishes financial accounting from
managerial accounting?
A) Financial accounting focuses on internal reports, while managerial focuses on
external reports.
B) Financial accounting is forward-looking, while managerial is historical.
C) Financial accounting must follow GAAP, while managerial accounting does not.
C) Financial accounting must follow GAAP, while managerial accounting does
not.
Rationale: Financial accounting is strictly regulated by GAAP for external users
(investors/creditors). Managerial accounting is for internal use and has no
mandatory rules (C). A and B are reversed; financial is historical, managerial is
forward-looking.
3. A company purchases a delivery truck for $40,000. According to the
accounting equation, how does this transaction affect the balance sheet?**
A) Assets decrease by $40,000; Liabilities increase by $40,000
B) Assets increase by $40,000; Equity increases by $40,000
C) Assets increase by $40,000 and decrease by $40,000 (net zero effect)
***C) Assets increase by $40,000 and decrease by $40,000 (net zero effect)*
Rationale: Exchanging one asset (cash) for another asset (truck) keeps the
,accounting equation (Assets = Liabilities + Equity) perfectly balanced with a net
zero change to total assets. Liabilities and Equity are unaffected unless the truck
was financed with debt.
4. 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
C) Balance Sheet
Rationale: The Balance Sheet is a "snapshot" of assets, liabilities, and equity on
a specific date (e.g., Dec 31). The Income Statement (A) and Cash Flows (B)
cover a period of time (e.g., the year ended Dec 31).
5. Revenue is recognized when:
A) Cash is received from the customer.
B) The customer places an order.
C) The performance obligation is satisfied.
D) The invoice is mailed to the customer.
C) The performance obligation is satisfied.
Rationale: Under accrual accounting (GAAP), revenue is recognized when
earned (the good/service is transferred to the customer), not when cash changes
hands (A). This is the core of the Revenue Recognition Principle.
6. If a company pays $12,000 for a 12-month insurance policy in advance, how
does this affect the accounting equation on the day of payment?
A) Assets decrease; Equity decreases
B) Assets increase; Liabilities increase
C) Assets increase and decrease (net zero)
C) Assets increase and decrease (net zero)
Rationale: Paying cash for prepaid insurance swaps one asset (Cash) for another
asset (Prepaid Insurance). Total assets stay the same. Liabilities and Equity are
unaffected until the insurance is "used up" (expensed) over time.
7. A company has $100,000 in assets and $60,000 in liabilities. What is the
owner's equity?
A) $160,000
B) $40,000
C) $60,000
D) $100,000
**B) $40,000***
*Rationale: Using the accounting equation: Assets = Liabilities + Equity.
Rearranged: Equity = Assets - Liabilities = $100,000 - $60,000 = $40,000.
,8. Which of the following is considered a "current" asset?
A) Land held for future expansion
B) Patent
C) Accounts Receivable
D) Equipment
C) Accounts Receivable
Rationale: Current assets are expected to be converted to cash, sold, or
consumed within one year. Accounts Receivable (C) fits this. Land (A), Patents
(B), and Equipment (D) are long-term (non-current) assets.
9. Accumulated Depreciation appears on the balance sheet as:
A) A liability
B) An expense
C) A contra-asset
D) An equity account
C) A contra-asset
Rationale: Accumulated Depreciation reduces the book value of fixed assets
(like equipment). It has a normal credit balance, opposing the normal debit
balance of assets, making it a contra-asset account.
10. Which of the following transactions would increase both assets and equity?
A) Purchasing inventory on credit
B) Issuing common stock for cash
C) Paying a dividend to shareholders
D) Taking out a bank loan
B) Issuing common stock for cash
Rationale: Issuing stock increases Cash (Asset) and increases Common Stock
(Equity). A increases Assets and Liabilities. C decreases Assets and Equity. D
increases Assets and Liabilities.
11. The Statement of Cash Flows is divided into which three sections?
A) Revenue, Expenses, and Net Income
B) Assets, Liabilities, and Equity
C) Operating, Investing, and Financing
D) Direct, Indirect, and Hybrid
C) Operating, Investing, and Financing
Rationale: Cash flows are classified by activity: Operating (day-to-day),
Investing (buying/selling long-term assets), and Financing (debt/equity
transactions). A and B are from the Income Statement and Balance Sheet.
12. A company sold goods to a customer on account (credit). How does this
affect the Income Statement and Balance Sheet immediately?
A) Revenue increases; Assets increase.
B) Revenue increases; Liabilities increase.
, C) Revenue increases; Assets decrease.
D) No effect until cash is collected.
A) Revenue increases; Assets increase.
Rationale: Under accrual accounting, revenue is recognized immediately. On the
Balance Sheet, Accounts Receivable (Asset) increases. On the Income Statement,
Revenue (and thus Net Income/Equity) increases.
13. Which of the following is an example of a financing activity on the
Statement of Cash Flows?
A) Paying employees' wages
B) Purchasing new equipment
C) Repaying a bank loan
D) Collecting cash from customers
C) Repaying a bank loan
Rationale: Financing activities involve debt and equity. Repaying a loan (C) is a
financing cash outflow. A and D are operating; B is investing.
14. What is the primary purpose of the Statement of Retained Earnings?
A) To show the market value of the company's stock
B) To show the changes in retained earnings over a period
C) To show the cash collected from customers
D) To show the total assets of the company
B) To show the changes in retained earnings over a period
Rationale: It bridges the Income Statement and Balance Sheet, showing
beginning retained earnings, plus net income, minus dividends, to get ending
retained earnings (which appears on the Balance Sheet).
15. A company has $500,000 in assets and $200,000 in liabilities. If it issues
$50,000 of common stock, what is the new total equity?**
A) $300,000
B) $350,000
C) $250,000
D) $400,000
***B) $350,000*
Rationale: Original Equity = 500k - 200k = 300k. Issuing stock increases equity
by 50k. New Equity = 300k + 50k = 350k. (Assets would also increase to 550k).
16. The "matching principle" states that:
A) Assets must equal liabilities plus equity.
B) Revenues are recorded when cash is received.
C) Expenses should be recorded in the same period as the revenues they helped
generate.
D) The business is separate from its owners.
C) Expenses should be recorded in the same period as the revenues they helped
