WGU D774
WGU D774 EXAM QUESTIONS AND CORRECT ANSWERS
(VERIFIED) GRADED A+ | WGU D774 OA INTRODUCTION TO
BUSINESS ACCOUNTING | LATEST 2026/2027 UPDATE |
GUARANTEED PASS | D774 OBJECTIVE ASSESSMENT | WGU
DOMAIN 1: THE ACCOUNTING EQUATION & DEBITS/CREDITS
Question 1
What is the fundamental accounting equation?
A) Assets = Liabilities - Owner's Equity
B) Assets = Liabilities + Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Liabilities = Assets + Owner's Equity
Correct answer: B
Rationale: The fundamental accounting equation states that Assets = Liabilities + Owner's Equity.
This equation must always balance after every transaction and is the foundation of double-entry
bookkeeping . Option A is reversed, Option C incorrectly adds assets and liabilities, and Option D is
the equation rearranged incorrectly.
Question 2
A company has total assets of $250,000 and total liabilities of $175,000. What is the amount of
owner's equity?
A) $425,000
B) $75,000
C) $175,000
D) $25,000
Correct answer: B
Rationale: Using the accounting equation (Assets = Liabilities + Owner's Equity), Owner's Equity =
Assets - Liabilities = $250,000 - $175,000 = $75,000 . Option A incorrectly adds the two figures, and
Option C ignores the relationship.
Question 3
A company purchases equipment for $10,000, paying $2,000 in cash and signing a note payable for
the remaining $8,000. What is the net effect on the accounting equation?
A) Assets increase by $10,000; liabilities increase by $10,000
B) Assets increase by $8,000; liabilities increase by $8,000
C) Assets increase by $8,000; liabilities decrease by $8,000
D) Assets decrease by $2,000; liabilities increase by $8,000
**Correct answer: B**
**Rationale:** The company gains Equipment (an asset) worth $10,000 but loses Cash (an asset) of
$2,000. The net change to assets is an increase of $8,000. The $8,000 financed is a new liability
(Notes Payable). The equation remains balanced because the net increase in assets (+$8,000) equals
the increase in liabilities (+$8,000) . Option A ignores the cash payment, and Option C incorrectly
treats the liability as decreasing.
Question 4
Which of the following is classified as a current asset?
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A) Equipment
B) Accounts Receivable
C) Common Stock
D) Notes Payable (long-term)
Correct answer: B
Rationale: Current assets are expected to be converted to cash or used within one year. Accounts
Receivable qualifies because it represents amounts collectible in the near term. Equipment is a non-
current asset, Common Stock is equity, and a long-term note payable is a liability .
Question 5
If a company has assets of $500,000 and owner's equity of $200,000, what are its total liabilities?
A) $700,000
B) $300,000
C) $200,000
D) $100,000
Correct answer: B
Rationale: Rearranging the accounting equation, Liabilities = Assets - Equity = $500,000 - $200,000 =
$300,000 . Option A is the sum of the two, not the difference.
Question 6
Which of the following best defines an asset?
A) An obligation to transfer resources to another entity in the future
B) A resource owned by a business that provides future economic benefit
C) The owner's claim on the assets of the business
D) The amount of money invested by shareholders
Correct answer: B
Rationale: An asset is a resource owned or controlled by a business that is expected to provide
future economic benefit. Examples include cash, equipment, and accounts receivable . Option A
describes a liability, and Option C describes equity.
Question 7
A company performs services on account for $5,000. What is the effect on the accounting equation?
A) Assets increase $5,000; liabilities increase $5,000
B) Assets increase $5,000; equity increases $5,000
C) Assets decrease $5,000; equity decreases $5,000
D) Liabilities increase $5,000; equity increases $5,000
Correct answer: B
Rationale: Performing services on account increases Accounts Receivable (an asset) and increases
Service Revenue, which increases equity . The equation remains balanced. Option A is incorrect
because liabilities are not affected by earning revenue.
Question 8
A company pays $2,000 for rent expense. What is the effect on the accounting equation?
A) Assets decrease $2,000; equity decreases $2,000
B) Assets decrease $2,000; liabilities decrease $2,000
C) Assets increase $2,000; equity decreases $2,000
D) Liabilities increase $2,000; equity decreases $2,000
Correct answer: A
Rationale: Paying rent expense decreases Cash (an asset) and increases Rent Expense, which
, WGU D774
decreases equity. The equation remains balanced with a net decrease to both sides . Option B is
incorrect because paying rent does not settle an existing liability.
Question 9
A company purchases office supplies for $500 on account. What is the effect on the accounting
equation?
A) Assets increase $500; liabilities decrease $500
B) Assets decrease $500; equity decreases $500
C) Assets increase $500; liabilities increase $500
D) No change to the accounting equation
Correct answer: C
Rationale: Purchasing supplies on account increases Supplies (an asset) and increases Accounts
Payable (a liability) . The accounting equation remains balanced.
Question 10
A company pays $3,000 to its employees for wages. What is the effect on the accounting equation?
A) Assets decrease $3,000; equity decreases $3,000
B) Assets decrease $3,000; liabilities decrease $3,000
C) Assets decrease $3,000; liabilities increase $3,000
D) Assets increase $3,000; equity decreases $3,000
Correct answer: A
Rationale: Paying wages in cash decreases Cash (asset) and increases Wages Expense, which
decreases equity . This is similar to paying rent, as it reduces assets and equity.
Question 11
A company collects $4,000 from a customer for a previously recorded account receivable. What is
the effect on the accounting equation?
A) Assets increase $4,000; liabilities increase $4,000
B) Assets decrease $4,000; liabilities decrease $4,000
C) Assets increase $4,000; assets decrease $4,000
D) Assets increase $4,000; equity increases $4,000
Correct answer: C
Rationale: Collecting cash from a customer increases Cash (asset) and decreases Accounts
Receivable (asset). Total assets do not change; this is an exchange of one asset for another .
Question 12
A company has liabilities of $45,000 and equity of $55,000. What are the total assets?
A) $10,000
B) $45,000
C) $100,000
D) $55,000
Correct answer: C
Rationale: Using the accounting equation, Assets = Liabilities + Equity = $45,000 + $55,000 =
$100,000 . Option A is the difference, not the sum.
Question 13
Which account is increased by a debit?
A) Accounts Payable
B) Equipment
C) Common Stock
, WGU D774
D) Service Revenue
Correct answer: B
Rationale: Assets (like Equipment) and expenses increase with debits . Liabilities, equity, and
revenues increase with credits. Option A, C, and D are liabilities, equity, and revenue, respectively,
and increase with credits.
Question 14
Which of the following accounts is increased with a credit?
A) Cash
B) Accounts Receivable
C) Rent Expense
D) Accounts Payable
Correct answer: D
Rationale: Liabilities (like Accounts Payable) increase with credits. Assets (Cash, AR) and expenses
increase with debits .
Question 15
A business owner invests $20,000 of personal cash into the business. What is the effect on the
accounting equation?
A) Assets increase $20,000; liabilities increase $20,000
B) Assets increase $20,000; equity increases $20,000
C) Assets decrease $20,000; equity decreases $20,000
D) Assets increase $20,000; assets decrease $20,000
Correct answer: B
Rationale: An owner investment increases Cash (asset) and increases Owner's Equity (Capital) . This
is the starting point for many businesses.
Question 16
A company takes out a bank loan for $50,000. What is the effect on the accounting equation?
A) Assets increase $50,000; equity increases $50,000
B) Assets decrease $50,000; liabilities decrease $50,000
C) Assets increase $50,000; liabilities increase $50,000
D) Liabilities increase $50,000; equity decreases $50,000
Correct answer: C
Rationale: Receiving a loan increases Cash (asset) and increases Notes Payable (liability) . The
company now has more cash but also owes more money.
Question 17
A company pays $1,000 for utilities. How is this transaction recorded on the accounting equation?
A) Assets decrease, liabilities decrease
B) Assets decrease, equity decreases
C) Assets increase, liabilities increase
D) Assets decrease, liabilities increase
Correct answer: B
Rationale: Paying utilities decreases Cash (asset) and increases Utilities Expense, which decreases
equity . This is the same logic as paying rent or wages.
Question 18
A company purchases inventory for $8,000 on credit. What is the effect on the accounting equation?
A) Assets increase $8,000; liabilities increase $8,000
WGU D774 EXAM QUESTIONS AND CORRECT ANSWERS
(VERIFIED) GRADED A+ | WGU D774 OA INTRODUCTION TO
BUSINESS ACCOUNTING | LATEST 2026/2027 UPDATE |
GUARANTEED PASS | D774 OBJECTIVE ASSESSMENT | WGU
DOMAIN 1: THE ACCOUNTING EQUATION & DEBITS/CREDITS
Question 1
What is the fundamental accounting equation?
A) Assets = Liabilities - Owner's Equity
B) Assets = Liabilities + Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Liabilities = Assets + Owner's Equity
Correct answer: B
Rationale: The fundamental accounting equation states that Assets = Liabilities + Owner's Equity.
This equation must always balance after every transaction and is the foundation of double-entry
bookkeeping . Option A is reversed, Option C incorrectly adds assets and liabilities, and Option D is
the equation rearranged incorrectly.
Question 2
A company has total assets of $250,000 and total liabilities of $175,000. What is the amount of
owner's equity?
A) $425,000
B) $75,000
C) $175,000
D) $25,000
Correct answer: B
Rationale: Using the accounting equation (Assets = Liabilities + Owner's Equity), Owner's Equity =
Assets - Liabilities = $250,000 - $175,000 = $75,000 . Option A incorrectly adds the two figures, and
Option C ignores the relationship.
Question 3
A company purchases equipment for $10,000, paying $2,000 in cash and signing a note payable for
the remaining $8,000. What is the net effect on the accounting equation?
A) Assets increase by $10,000; liabilities increase by $10,000
B) Assets increase by $8,000; liabilities increase by $8,000
C) Assets increase by $8,000; liabilities decrease by $8,000
D) Assets decrease by $2,000; liabilities increase by $8,000
**Correct answer: B**
**Rationale:** The company gains Equipment (an asset) worth $10,000 but loses Cash (an asset) of
$2,000. The net change to assets is an increase of $8,000. The $8,000 financed is a new liability
(Notes Payable). The equation remains balanced because the net increase in assets (+$8,000) equals
the increase in liabilities (+$8,000) . Option A ignores the cash payment, and Option C incorrectly
treats the liability as decreasing.
Question 4
Which of the following is classified as a current asset?
, WGU D774
A) Equipment
B) Accounts Receivable
C) Common Stock
D) Notes Payable (long-term)
Correct answer: B
Rationale: Current assets are expected to be converted to cash or used within one year. Accounts
Receivable qualifies because it represents amounts collectible in the near term. Equipment is a non-
current asset, Common Stock is equity, and a long-term note payable is a liability .
Question 5
If a company has assets of $500,000 and owner's equity of $200,000, what are its total liabilities?
A) $700,000
B) $300,000
C) $200,000
D) $100,000
Correct answer: B
Rationale: Rearranging the accounting equation, Liabilities = Assets - Equity = $500,000 - $200,000 =
$300,000 . Option A is the sum of the two, not the difference.
Question 6
Which of the following best defines an asset?
A) An obligation to transfer resources to another entity in the future
B) A resource owned by a business that provides future economic benefit
C) The owner's claim on the assets of the business
D) The amount of money invested by shareholders
Correct answer: B
Rationale: An asset is a resource owned or controlled by a business that is expected to provide
future economic benefit. Examples include cash, equipment, and accounts receivable . Option A
describes a liability, and Option C describes equity.
Question 7
A company performs services on account for $5,000. What is the effect on the accounting equation?
A) Assets increase $5,000; liabilities increase $5,000
B) Assets increase $5,000; equity increases $5,000
C) Assets decrease $5,000; equity decreases $5,000
D) Liabilities increase $5,000; equity increases $5,000
Correct answer: B
Rationale: Performing services on account increases Accounts Receivable (an asset) and increases
Service Revenue, which increases equity . The equation remains balanced. Option A is incorrect
because liabilities are not affected by earning revenue.
Question 8
A company pays $2,000 for rent expense. What is the effect on the accounting equation?
A) Assets decrease $2,000; equity decreases $2,000
B) Assets decrease $2,000; liabilities decrease $2,000
C) Assets increase $2,000; equity decreases $2,000
D) Liabilities increase $2,000; equity decreases $2,000
Correct answer: A
Rationale: Paying rent expense decreases Cash (an asset) and increases Rent Expense, which
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decreases equity. The equation remains balanced with a net decrease to both sides . Option B is
incorrect because paying rent does not settle an existing liability.
Question 9
A company purchases office supplies for $500 on account. What is the effect on the accounting
equation?
A) Assets increase $500; liabilities decrease $500
B) Assets decrease $500; equity decreases $500
C) Assets increase $500; liabilities increase $500
D) No change to the accounting equation
Correct answer: C
Rationale: Purchasing supplies on account increases Supplies (an asset) and increases Accounts
Payable (a liability) . The accounting equation remains balanced.
Question 10
A company pays $3,000 to its employees for wages. What is the effect on the accounting equation?
A) Assets decrease $3,000; equity decreases $3,000
B) Assets decrease $3,000; liabilities decrease $3,000
C) Assets decrease $3,000; liabilities increase $3,000
D) Assets increase $3,000; equity decreases $3,000
Correct answer: A
Rationale: Paying wages in cash decreases Cash (asset) and increases Wages Expense, which
decreases equity . This is similar to paying rent, as it reduces assets and equity.
Question 11
A company collects $4,000 from a customer for a previously recorded account receivable. What is
the effect on the accounting equation?
A) Assets increase $4,000; liabilities increase $4,000
B) Assets decrease $4,000; liabilities decrease $4,000
C) Assets increase $4,000; assets decrease $4,000
D) Assets increase $4,000; equity increases $4,000
Correct answer: C
Rationale: Collecting cash from a customer increases Cash (asset) and decreases Accounts
Receivable (asset). Total assets do not change; this is an exchange of one asset for another .
Question 12
A company has liabilities of $45,000 and equity of $55,000. What are the total assets?
A) $10,000
B) $45,000
C) $100,000
D) $55,000
Correct answer: C
Rationale: Using the accounting equation, Assets = Liabilities + Equity = $45,000 + $55,000 =
$100,000 . Option A is the difference, not the sum.
Question 13
Which account is increased by a debit?
A) Accounts Payable
B) Equipment
C) Common Stock
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D) Service Revenue
Correct answer: B
Rationale: Assets (like Equipment) and expenses increase with debits . Liabilities, equity, and
revenues increase with credits. Option A, C, and D are liabilities, equity, and revenue, respectively,
and increase with credits.
Question 14
Which of the following accounts is increased with a credit?
A) Cash
B) Accounts Receivable
C) Rent Expense
D) Accounts Payable
Correct answer: D
Rationale: Liabilities (like Accounts Payable) increase with credits. Assets (Cash, AR) and expenses
increase with debits .
Question 15
A business owner invests $20,000 of personal cash into the business. What is the effect on the
accounting equation?
A) Assets increase $20,000; liabilities increase $20,000
B) Assets increase $20,000; equity increases $20,000
C) Assets decrease $20,000; equity decreases $20,000
D) Assets increase $20,000; assets decrease $20,000
Correct answer: B
Rationale: An owner investment increases Cash (asset) and increases Owner's Equity (Capital) . This
is the starting point for many businesses.
Question 16
A company takes out a bank loan for $50,000. What is the effect on the accounting equation?
A) Assets increase $50,000; equity increases $50,000
B) Assets decrease $50,000; liabilities decrease $50,000
C) Assets increase $50,000; liabilities increase $50,000
D) Liabilities increase $50,000; equity decreases $50,000
Correct answer: C
Rationale: Receiving a loan increases Cash (asset) and increases Notes Payable (liability) . The
company now has more cash but also owes more money.
Question 17
A company pays $1,000 for utilities. How is this transaction recorded on the accounting equation?
A) Assets decrease, liabilities decrease
B) Assets decrease, equity decreases
C) Assets increase, liabilities increase
D) Assets decrease, liabilities increase
Correct answer: B
Rationale: Paying utilities decreases Cash (asset) and increases Utilities Expense, which decreases
equity . This is the same logic as paying rent or wages.
Question 18
A company purchases inventory for $8,000 on credit. What is the effect on the accounting equation?
A) Assets increase $8,000; liabilities increase $8,000
