,WGU D196 OA Exam | Principles of Financial and Managerial Accounting
(2026) Q&A | Western Governors University
1. Which of the following best describes the primary purpose of accounting?
A) To track only cash transactions
B) To provide quantitative financial information useful for economic decisions
C) To prepare documents exclusively for government regulators
D) To ensure a company pays the minimum amount of taxes
Correct Answer: To provide quantitative financial information useful for economic
decisions
Rationale: Accounting is a system for providing quantitative, financial information about
economic entities that is useful for making sound economic decisions. It records and
communicates business activities to both internal and external users. Tax compliance is
only one narrow function, and accounting tracks all transactions, not just cash.
2. What is the fundamental accounting equation?
A) Assets = Liabilities + Equity
B) Assets + Liabilities = Equity
C) Assets = Liabilities − Equity
D) Assets + Equity = Liabilities
Correct Answer: Assets = Liabilities + Equity
Rationale: The fundamental accounting equation shows that a company's resources
(assets) are financed by debts (liabilities) and owner contributions (equity). This equation
must always remain in balance after every transaction.
,3. Which organization establishes Generally Accepted Accounting Principles (GAAP) in the
United States?
A) Internal Revenue Service
B) American Institute of Certified Public Accountants
C) Financial Accounting Standards Board
D) International Accounting Standards Board
Correct Answer: Financial Accounting Standards Board
Rationale: The Financial Accounting Standards Board (FASB) is the designated private-
sector organization that establishes GAAP in the United States. The IRS sets tax rules, the
AICPA is a professional organization, and the IASB sets international standards.
4. Which financial statement reports a company's revenues and expenses over a period of
time?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Changes in Equity
Correct Answer: Income Statement
Rationale: The income statement presents a company's financial performance over a
specified period, detailing revenues earned and expenses incurred. The balance sheet
reports financial position at a point in time, and the statement of cash flows details cash
transactions.
, 5. Which financial statement reports a company's assets, liabilities, and equity at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Correct Answer: Balance Sheet
Rationale: The balance sheet outlines a company's financial position at a specific point in
time. It is composed of three main components: assets, liabilities, and equity.
6. What is the primary purpose of managerial accounting?
A) To provide information for internal decision-making
B) To ensure compliance with external regulations
C) To report financial performance to external parties
D) To calculate tax liabilities
Correct Answer: To provide information for internal decision-making
Rationale: Managerial accounting focuses on providing useful information for managers
and organizational leaders to make informed decisions regarding daily operations and
strategic planning. Financial accounting serves external users.
7. Which of the following is considered a component of the balance sheet?
A) Revenue
B) Expenses
(2026) Q&A | Western Governors University
1. Which of the following best describes the primary purpose of accounting?
A) To track only cash transactions
B) To provide quantitative financial information useful for economic decisions
C) To prepare documents exclusively for government regulators
D) To ensure a company pays the minimum amount of taxes
Correct Answer: To provide quantitative financial information useful for economic
decisions
Rationale: Accounting is a system for providing quantitative, financial information about
economic entities that is useful for making sound economic decisions. It records and
communicates business activities to both internal and external users. Tax compliance is
only one narrow function, and accounting tracks all transactions, not just cash.
2. What is the fundamental accounting equation?
A) Assets = Liabilities + Equity
B) Assets + Liabilities = Equity
C) Assets = Liabilities − Equity
D) Assets + Equity = Liabilities
Correct Answer: Assets = Liabilities + Equity
Rationale: The fundamental accounting equation shows that a company's resources
(assets) are financed by debts (liabilities) and owner contributions (equity). This equation
must always remain in balance after every transaction.
,3. Which organization establishes Generally Accepted Accounting Principles (GAAP) in the
United States?
A) Internal Revenue Service
B) American Institute of Certified Public Accountants
C) Financial Accounting Standards Board
D) International Accounting Standards Board
Correct Answer: Financial Accounting Standards Board
Rationale: The Financial Accounting Standards Board (FASB) is the designated private-
sector organization that establishes GAAP in the United States. The IRS sets tax rules, the
AICPA is a professional organization, and the IASB sets international standards.
4. Which financial statement reports a company's revenues and expenses over a period of
time?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Changes in Equity
Correct Answer: Income Statement
Rationale: The income statement presents a company's financial performance over a
specified period, detailing revenues earned and expenses incurred. The balance sheet
reports financial position at a point in time, and the statement of cash flows details cash
transactions.
, 5. Which financial statement reports a company's assets, liabilities, and equity at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Correct Answer: Balance Sheet
Rationale: The balance sheet outlines a company's financial position at a specific point in
time. It is composed of three main components: assets, liabilities, and equity.
6. What is the primary purpose of managerial accounting?
A) To provide information for internal decision-making
B) To ensure compliance with external regulations
C) To report financial performance to external parties
D) To calculate tax liabilities
Correct Answer: To provide information for internal decision-making
Rationale: Managerial accounting focuses on providing useful information for managers
and organizational leaders to make informed decisions regarding daily operations and
strategic planning. Financial accounting serves external users.
7. Which of the following is considered a component of the balance sheet?
A) Revenue
B) Expenses
