1|Page
WGU D196 PRINCIPLES OF FINANCIAL
AND MANAGERIAL ACCOUNTING OA
OBJECTIVE ASSESSMENT QUESTIONS
AND CORRECT ANSWERS PLUS
RATIONALES [QUESTION 1–100] AND
ANSWERS UPDATED 2026/2027 |
DETAILED RATIONALES – INSTANT
DOWNLOAD
INTRODUCTION
WGU D196: Principles of Financial and Managerial Accounting introduces students to the
accounting concepts used to record business transactions, prepare financial statements, evaluate
organizational performance, and support management decisions. The course combines financial
accounting, which focuses on communicating financial information to external stakeholders,
with managerial accounting, which helps internal decision-makers plan operations, control costs,
and evaluate alternatives.
This practice question bank is designed for students preparing for the D196 Objective
Assessment (OA). It emphasizes applied problem-solving through realistic business scenarios,
calculations, financial statement interpretation, cost behavior, budgeting, and managerial
decision-making. Questions include four answer choices, one best answer, and detailed rationales
explaining the correct response and why the alternatives are incorrect.
Use this resource to strengthen your understanding of accounting principles, identify areas
requiring additional review, and develop confidence with both conceptual and numerical
questions. For effective preparation, solve each question before reading its explanation, write out
calculations, and revisit any topic where you make repeated errors. Pay particular attention to
debit-and-credit rules, the accounting equation, accrual accounting, inventory and cost
classifications, and the distinction between financial and managerial accounting. These are
original practice questions for study purposes, not official WGU assessment items. Pair them
with your current course materials and assessment guidance for comprehensive preparation.
CONTENT AREA OVERVIEW
Suggested
Content area Questions Key topics
weight
,2|Page
Accounting foundations and the Assets, liabilities, equity,
1–12 12%
accounting equation accounting principles
Recording transactions and Debits, credits, accruals, deferrals,
13–25 13%
adjusting entries depreciation
Financial statements and Income statement, balance sheet,
26–40 15%
financial analysis cash flows, ratios
Revenue, receivables, inventory, Revenue recognition, bad debts,
41–53 13%
and long-lived assets inventory, depreciation
Fixed, variable, mixed, direct,
Cost concepts and cost behavior 54–65 12%
indirect, product costs
Cost-volume-profit and Break-even, contribution margin,
66–76 11%
contribution analysis target profit
Budgets, variance analysis, and Operating budgets, flexible
77–88 12%
performance budgets, variances
Managerial decisions and internal Relevant costs, make-or-buy,
89–100 12%
reporting pricing, responsibility
These are suggested study allocations for this practice bank, not official WGU assessment
weights.
QUESTIONS 1–100
Section 1: Accounting Foundations and the Accounting Equation
Q1. A business purchases equipment for $18,000, paying $5,000 in cash and signing a note
payable for the balance. What is the immediate effect on the accounting equation?
A) Assets increase by $18,000, and equity increases by $18,000.
B) Equipment increases by $18,000, cash decreases by $5,000, and liabilities increase by
$13,000.
C) Assets decrease by $5,000, and liabilities increase by $18,000.
D) Equipment increases by $13,000, and liabilities increase by $5,000.
Rationale: B is correct because the business receives equipment worth $18,000, pays $5,000
cash, and assumes a $13,000 liability. Total assets increase by the net amount of $13,000, which
equals the increase in liabilities. A incorrectly records an equity increase. C reverses the
transaction's net asset effect. D reverses the cash and note payable amounts.
Q2. A company collects $7,500 from a customer who previously purchased services on account.
Which effect occurs when the collection is recorded?
,3|Page
A) Revenue increases by $7,500, and cash increases by $7,500.
B) Accounts receivable and liabilities both decrease by $7,500.
C) Equity increases by $7,500, and accounts receivable decreases by $7,500.
D) Cash increases by $7,500, and accounts receivable decreases by $7,500.
Rationale: D is correct because the revenue was recognized when the service was provided on
account. Collection converts one asset, accounts receivable, into another asset, cash. A would
recognize revenue a second time. B incorrectly introduces a liability. C incorrectly increases
equity at the collection stage.
Q3. An owner invests $25,000 cash into a new business in exchange for ownership shares.
Which entry correctly records the investment?
A) Debit revenue $25,000; credit cash $25,000.
B) Debit cash $25,000; credit contributed capital $25,000.
C) Debit cash $25,000; credit accounts payable $25,000.
D) Debit expenses $25,000; credit contributed capital $25,000.
Rationale: B is correct because cash, an asset, increases with a debit, while contributed capital,
an equity account, increases with a credit. A incorrectly treats an owner's investment as revenue
and records cash in the wrong direction. C incorrectly creates a liability. D incorrectly records
an expense when the owner contributes resources.
Q4. A company has assets of $140,000 and liabilities of $52,000. During the period, the owner
contributes another $10,000, and the company earns net income of $18,000 with no owner
withdrawals. What is ending equity?
A) $70,000.
B) $78,000.
C) $116,000.
D) $88,000.
Rationale: C is correct if the question asks for ending equity after the stated changes and the
opening balances are assets of $140,000 and liabilities of $52,000. Opening equity is $140,000
− $52,000 = $88,000. Adding the $10,000 contribution and $18,000 net income gives $116,000.
A omits the opening equity calculation. B omits one of the equity increases. D gives opening
equity rather than ending equity.
, 4|Page
Q5. A business pays $2,400 for a six-month insurance policy beginning on the first day of the
month. What is the initial effect of paying the premium, assuming the policy has not yet expired?
A) Insurance expense increases by $2,400, and liabilities increase by $2,400.
B) Cash and equity both decrease by $2,400.
C) Cash decreases by $2,400, and prepaid insurance increases by $2,400.
D) Cash decreases by $2,400, and revenue increases by $2,400.
Rationale: C is correct because the unexpired insurance coverage is initially recorded as an
asset, prepaid insurance. A incorrectly expenses the entire unexpired policy immediately and
invents a liability. B incorrectly reduces equity at payment rather than as coverage is consumed.
D incorrectly treats insurance payment as revenue.
Q6. A company purchases office supplies for $900 cash. The supplies are expected to be used
over the next several weeks. Which initial entry is most appropriate if the company records
supplies as an asset when purchased?
A) Debit supplies expense; credit accounts payable.
B) Debit accounts payable; credit supplies.
C) Debit cash; credit supplies expense.
D) Debit supplies; credit cash.
Rationale: D is correct because supplies increase as an asset and cash decreases. A records a
liability even though cash was paid. B reverses the normal account effects. C incorrectly
increases cash and records an expense at purchase despite the stated asset method.
Q7. A company receives a $4,000 utility bill in December for electricity used during December
but will pay it in January. Under accrual accounting, what should be recorded in December?
A) No entry until cash is paid.
B) A debit to cash and a credit to utility expense.
C) A debit to utility expense and a credit to utilities payable.
D) A debit to utilities payable and a credit to revenue.
Rationale: C is correct because the expense is recognized in the period in which the electricity
was consumed, with a corresponding liability for the unpaid amount. A violates accrual
WGU D196 PRINCIPLES OF FINANCIAL
AND MANAGERIAL ACCOUNTING OA
OBJECTIVE ASSESSMENT QUESTIONS
AND CORRECT ANSWERS PLUS
RATIONALES [QUESTION 1–100] AND
ANSWERS UPDATED 2026/2027 |
DETAILED RATIONALES – INSTANT
DOWNLOAD
INTRODUCTION
WGU D196: Principles of Financial and Managerial Accounting introduces students to the
accounting concepts used to record business transactions, prepare financial statements, evaluate
organizational performance, and support management decisions. The course combines financial
accounting, which focuses on communicating financial information to external stakeholders,
with managerial accounting, which helps internal decision-makers plan operations, control costs,
and evaluate alternatives.
This practice question bank is designed for students preparing for the D196 Objective
Assessment (OA). It emphasizes applied problem-solving through realistic business scenarios,
calculations, financial statement interpretation, cost behavior, budgeting, and managerial
decision-making. Questions include four answer choices, one best answer, and detailed rationales
explaining the correct response and why the alternatives are incorrect.
Use this resource to strengthen your understanding of accounting principles, identify areas
requiring additional review, and develop confidence with both conceptual and numerical
questions. For effective preparation, solve each question before reading its explanation, write out
calculations, and revisit any topic where you make repeated errors. Pay particular attention to
debit-and-credit rules, the accounting equation, accrual accounting, inventory and cost
classifications, and the distinction between financial and managerial accounting. These are
original practice questions for study purposes, not official WGU assessment items. Pair them
with your current course materials and assessment guidance for comprehensive preparation.
CONTENT AREA OVERVIEW
Suggested
Content area Questions Key topics
weight
,2|Page
Accounting foundations and the Assets, liabilities, equity,
1–12 12%
accounting equation accounting principles
Recording transactions and Debits, credits, accruals, deferrals,
13–25 13%
adjusting entries depreciation
Financial statements and Income statement, balance sheet,
26–40 15%
financial analysis cash flows, ratios
Revenue, receivables, inventory, Revenue recognition, bad debts,
41–53 13%
and long-lived assets inventory, depreciation
Fixed, variable, mixed, direct,
Cost concepts and cost behavior 54–65 12%
indirect, product costs
Cost-volume-profit and Break-even, contribution margin,
66–76 11%
contribution analysis target profit
Budgets, variance analysis, and Operating budgets, flexible
77–88 12%
performance budgets, variances
Managerial decisions and internal Relevant costs, make-or-buy,
89–100 12%
reporting pricing, responsibility
These are suggested study allocations for this practice bank, not official WGU assessment
weights.
QUESTIONS 1–100
Section 1: Accounting Foundations and the Accounting Equation
Q1. A business purchases equipment for $18,000, paying $5,000 in cash and signing a note
payable for the balance. What is the immediate effect on the accounting equation?
A) Assets increase by $18,000, and equity increases by $18,000.
B) Equipment increases by $18,000, cash decreases by $5,000, and liabilities increase by
$13,000.
C) Assets decrease by $5,000, and liabilities increase by $18,000.
D) Equipment increases by $13,000, and liabilities increase by $5,000.
Rationale: B is correct because the business receives equipment worth $18,000, pays $5,000
cash, and assumes a $13,000 liability. Total assets increase by the net amount of $13,000, which
equals the increase in liabilities. A incorrectly records an equity increase. C reverses the
transaction's net asset effect. D reverses the cash and note payable amounts.
Q2. A company collects $7,500 from a customer who previously purchased services on account.
Which effect occurs when the collection is recorded?
,3|Page
A) Revenue increases by $7,500, and cash increases by $7,500.
B) Accounts receivable and liabilities both decrease by $7,500.
C) Equity increases by $7,500, and accounts receivable decreases by $7,500.
D) Cash increases by $7,500, and accounts receivable decreases by $7,500.
Rationale: D is correct because the revenue was recognized when the service was provided on
account. Collection converts one asset, accounts receivable, into another asset, cash. A would
recognize revenue a second time. B incorrectly introduces a liability. C incorrectly increases
equity at the collection stage.
Q3. An owner invests $25,000 cash into a new business in exchange for ownership shares.
Which entry correctly records the investment?
A) Debit revenue $25,000; credit cash $25,000.
B) Debit cash $25,000; credit contributed capital $25,000.
C) Debit cash $25,000; credit accounts payable $25,000.
D) Debit expenses $25,000; credit contributed capital $25,000.
Rationale: B is correct because cash, an asset, increases with a debit, while contributed capital,
an equity account, increases with a credit. A incorrectly treats an owner's investment as revenue
and records cash in the wrong direction. C incorrectly creates a liability. D incorrectly records
an expense when the owner contributes resources.
Q4. A company has assets of $140,000 and liabilities of $52,000. During the period, the owner
contributes another $10,000, and the company earns net income of $18,000 with no owner
withdrawals. What is ending equity?
A) $70,000.
B) $78,000.
C) $116,000.
D) $88,000.
Rationale: C is correct if the question asks for ending equity after the stated changes and the
opening balances are assets of $140,000 and liabilities of $52,000. Opening equity is $140,000
− $52,000 = $88,000. Adding the $10,000 contribution and $18,000 net income gives $116,000.
A omits the opening equity calculation. B omits one of the equity increases. D gives opening
equity rather than ending equity.
, 4|Page
Q5. A business pays $2,400 for a six-month insurance policy beginning on the first day of the
month. What is the initial effect of paying the premium, assuming the policy has not yet expired?
A) Insurance expense increases by $2,400, and liabilities increase by $2,400.
B) Cash and equity both decrease by $2,400.
C) Cash decreases by $2,400, and prepaid insurance increases by $2,400.
D) Cash decreases by $2,400, and revenue increases by $2,400.
Rationale: C is correct because the unexpired insurance coverage is initially recorded as an
asset, prepaid insurance. A incorrectly expenses the entire unexpired policy immediately and
invents a liability. B incorrectly reduces equity at payment rather than as coverage is consumed.
D incorrectly treats insurance payment as revenue.
Q6. A company purchases office supplies for $900 cash. The supplies are expected to be used
over the next several weeks. Which initial entry is most appropriate if the company records
supplies as an asset when purchased?
A) Debit supplies expense; credit accounts payable.
B) Debit accounts payable; credit supplies.
C) Debit cash; credit supplies expense.
D) Debit supplies; credit cash.
Rationale: D is correct because supplies increase as an asset and cash decreases. A records a
liability even though cash was paid. B reverses the normal account effects. C incorrectly
increases cash and records an expense at purchase despite the stated asset method.
Q7. A company receives a $4,000 utility bill in December for electricity used during December
but will pay it in January. Under accrual accounting, what should be recorded in December?
A) No entry until cash is paid.
B) A debit to cash and a credit to utility expense.
C) A debit to utility expense and a credit to utilities payable.
D) A debit to utilities payable and a credit to revenue.
Rationale: C is correct because the expense is recognized in the period in which the electricity
was consumed, with a corresponding liability for the unpaid amount. A violates accrual
