WGU D196 Principles of Financial and Managerial Accounting OA: 300 Practice Questions with Detailed Rationales & Answers | Complete Study Guide

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WGU D196 Principles of Financial and
Managerial Accounting OA: 300 Practice
Questions with Detailed Rationales &
Answers | Complete Study Guide

SET 1: Role of Accounting & Accounting Equation (Questions 1–
30)
Q1. Which of the following best describes the primary function of financial
accounting?
a) To provide detailed internal reports for management decision-making
b) To record, summarize, and communicate financial information to external users
c) To compute the cost of manufacturing products for pricing decisions
d) To prepare budgets and forecasts for future planning
Answer: b) To record, summarize, and communicate financial information to
external users
Rationale: Financial accounting focuses on providing information to external
users (investors, creditors, regulators) through standardized financial
statements. Option A describes managerial accounting, C is a cost accounting
function, and D is a budgeting function.




Q2. Managerial accounting is primarily designed to serve which group of users?
a) Shareholders and potential investors
b) Banks and lending institutions
c) Internal managers and employees
d) Government regulatory agencies
Answer: c) Internal managers and employees
Rationale: Managerial accounting provides internal reports for planning,
controlling, and decision-making. The other options are external users who rely
on financial accounting.




Q3. The accounting equation is expressed as:
a) Assets = Liabilities – Equity

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b) Assets + Liabilities = Equity
c) Assets = Liabilities + Equity
d) Assets + Equity = Liabilities
Answer: c) Assets = Liabilities + Equity
Rationale: This is the fundamental accounting equation that must always
balance. It shows that a company's resources (assets) are financed by creditors
(liabilities) and owners (equity).




Q4. If a company has total assets of $500,000 and total liabilities of $300,000, what is
the amount of equity?
a) $800,000
b) $200,000
c) $500,000
d) $300,000
**Answer: b) $200,000***
*Rationale: Equity = Assets – Liabilities. $500,000 – $300,000 = $200,000. This
represents the owners' claim on the company's assets.




Q5. A company purchases equipment for $50,000 cash. How does this transaction
affect the accounting equation?
a) Assets increase and liabilities increase
b) Assets decrease and equity decreases
c) One asset increases and another asset decreases
d) Assets increase and equity increases
***Answer: c) One asset increases and another asset decreases***
*Rationale: Equipment (an asset) increases by $50,000 while Cash (an asset)
decreases by $50,000. Total assets remain unchanged; liabilities and equity are
unaffected.*




Q6. Which of the following is an example of a liability?
a) Cash
b) Accounts Receivable
c) Equipment
d) Accounts Payable
Answer: d) Accounts Payable

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Rationale: Accounts payable represents amounts owed to suppliers for
purchases on credit. Cash, receivables, and equipment are all assets.




Q7. Retained Earnings is classified as which type of account?
a) Asset
b) Liability
c) Equity
d) Expense
Answer: c) Equity
Rationale: Retained earnings represent cumulative net income retained in the
business (not distributed as dividends) and is part of shareholders' equity.




Q8. The organization responsible for establishing U.S. generally accepted accounting
principles (GAAP) is the:
a) Securities and Exchange Commission (SEC)
b) Financial Accounting Standards Board (FASB)
c) International Accounting Standards Board (IASB)
d) American Institute of CPAs (AICPA)
Answer: b) Financial Accounting Standards Board (FASB)
Rationale: The FASB is the private-sector body that establishes GAAP in the U.S.
The SEC has legal authority but delegates standard-setting to the FASB. The
IASB sets international standards (IFRS).




Q9. Which of the following is NOT a function of accounting?
a) Bookkeeping
b) Analysis of financial data
c) Evaluation of business performance
d) Directing daily operations of employees
Answer: d) Directing daily operations of employees
Rationale: The three basic functions of accounting are bookkeeping (recording),
analysis (interpreting), and evaluation (assessing). Directing operations is a
management function, not an accounting function.

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Q10. A company receives $10,000 from a customer for services to be provided next
month. How does this affect the accounting equation?
a) Assets increase and liabilities increase
b) Assets increase and equity increases
c) Assets increase and liabilities decrease
d) Assets decrease and liabilities decrease
***Answer: a) Assets increase and liabilities increase***
*Rationale: Cash (asset) increases by $10,000. Since the service hasn't been
performed yet, the company has an obligation to provide the service, creating
Unearned Revenue (a liability), which also increases.*




Q11. Which of the following best describes "cost of goods sold"?
a) An asset account
b) A liability account
c) An expense account
d) An equity account
Answer: c) An expense account
Rationale: Cost of goods sold is the cost of products that were sold during the
period. It is an expense that appears on the income statement, reducing net
income.




Q12. A company borrows $100,000 from a bank by signing a note payable. What is
the effect on the accounting equation?
a) Assets increase and liabilities increase
b) Assets increase and equity increases
c) Assets decrease and liabilities decrease
d) Liabilities increase and equity decreases
***Answer: a) Assets increase and liabilities increase***
*Rationale: Cash (asset) increases by $100,000, and Notes Payable (liability) increases
by $100,000. Equity is not affected by borrowing.*




Q13. Which of the following is an example of a financing activity?
a) Purchasing inventory for cash
b) Selling goods to customers
c) Issuing common stock to investors