WGU D196 Accounting Study Guide: Financial &
Managerial Terms (2026/2027)
Principles of Financial & Managerial Accounting | Key Domains: Accounting Equation & Financial
Statements, Recording Business Transactions, Accrual Accounting & Adjusting Entries,
Merchandising & Inventory, Costing & Managerial Concepts, Budgeting & Performance Evaluation,
and Ethical Considerations in Accounting | Expert-Aligned Structure | Comprehensive Study Guide
Format
Introduction
This structured WGU D196 Accounting Study Guide for 2026/2027 provides a comprehensive
review of essential financial and managerial accounting terminology and concepts. It emphasizes
the foundational knowledge required to understand, record, and analyze business transactions and
to use accounting information for internal decision-making, aligned with WGU's competency-based
approach.
Guide Structure:
● Detailed Terminology & Concept Review: (ALL KEY ACCOUNTING DOMAINS)
● Integrated Application Questions: (100 TERM IDENTIFICATION & SCENARIO ITEMS)
Answer Format
All correct term definitions and concept applications must appear in bold and cyan blue,
accompanied by concise rationales explaining the meaning of the accounting term (e.g., "Accrual,"
"Cost of Goods Sold," "Variable Cost"), its role in the accounting cycle or decision-making process,
and why alternative definitions or applications are incorrect based on GAAP or managerial
accounting principles.
1. The fundamental accounting equation is:
● A. Assets = Liabilities – Equity
● B. Assets + Liabilities = Equity
● C. Assets = Liabilities + Equity
● D. Equity = Assets + Liabilities
C. Assets = Liabilities + Equity
This equation is the foundation of double-entry accounting. It states that a company’s resources
(assets) are financed either by creditors (liabilities) or owners (equity). Every transaction affects at
least two accounts to keep this equation in balance.
,2. Which financial statement reports revenues and expenses over a period of time?
● A. Balance Sheet
● B. Statement of Cash Flows
● C. Income Statement
● D. Statement of Retained Earnings
C. Income Statement
The income statement shows a company’s profitability by listing revenues earned and expenses
incurred during a specific period. Net income (or loss) is calculated as Revenues – Expenses.
3. An accrual refers to:
● A. Cash received before revenue is earned
● B. Revenue earned or expense incurred before cash is exchanged
● C. Payment of a liability
● D. Purchase of inventory for cash
B. Revenue earned or expense incurred before cash is exchanged
Accrual accounting recognizes revenues when earned and expenses when incurred, regardless of cash
flow. This aligns with the revenue recognition and matching principles under GAAP.
4. The cost of goods sold (COGS) represents:
● A. Selling and administrative expenses
● B. The cost of inventory sold to customers
● C. The purchase price of ending inventory
● D. Total operating expenses
B. The cost of inventory sold to customers
COGS is a product cost that includes the direct costs of producing or purchasing the goods that were
sold during the period. It is subtracted from net sales to determine gross profit.
5. A variable cost is one that:
● A. Remains constant in total regardless of activity level
● B. Changes in total in direct proportion to changes in activity level
● C. Is always fixed per unit
● D. Includes rent and salaries
B. Changes in total in direct proportion to changes in activity level
, Variable costs (e.g., direct materials, sales commissions) increase as production or sales increase and
decrease when activity declines. Per-unit variable cost remains constant, but total variable cost varies
with volume.
6. Depreciation is an example of a(n):
● A. Accrued expense
● B. Deferred expense (prepaid)
● C. Non-cash expense
● D. Cash outflow
C. Non-cash expense
Depreciation allocates the cost of a long-term asset over its useful life. It reduces net income but does
not involve a cash payment in the period it is recorded, making it a non-cash expense added back in the
statement of cash flows (operating activities).
7. The matching principle requires that:
● A. All transactions be documented
● B. Expenses be recorded in the same period as the revenues they help generate
● C. Assets equal liabilities plus equity
● D. Cash receipts equal cash disbursements
B. Expenses be recorded in the same period as the revenues they help generate
The matching principle ensures accurate measurement of profitability by aligning expenses with the
related revenues in the same accounting period, which is a cornerstone of accrual accounting.
8. Which of the following is a current asset?
● A. Land
● B. Patents
● C. Accounts Receivable
● D. Equipment
C. Accounts Receivable
Current assets are expected to be converted to cash or used within one year or the operating cycle,
whichever is longer. Accounts receivable typically collect within 30–90 days. Land, patents, and
equipment are long-term (non-current) assets.
9. The journal entry to record the purchase of equipment for $10,000 cash is:
● A. Debit Equipment $10,000; Credit Cash $10,000
● B. Debit Cash $10,000; Credit Equipment $10,000
Managerial Terms (2026/2027)
Principles of Financial & Managerial Accounting | Key Domains: Accounting Equation & Financial
Statements, Recording Business Transactions, Accrual Accounting & Adjusting Entries,
Merchandising & Inventory, Costing & Managerial Concepts, Budgeting & Performance Evaluation,
and Ethical Considerations in Accounting | Expert-Aligned Structure | Comprehensive Study Guide
Format
Introduction
This structured WGU D196 Accounting Study Guide for 2026/2027 provides a comprehensive
review of essential financial and managerial accounting terminology and concepts. It emphasizes
the foundational knowledge required to understand, record, and analyze business transactions and
to use accounting information for internal decision-making, aligned with WGU's competency-based
approach.
Guide Structure:
● Detailed Terminology & Concept Review: (ALL KEY ACCOUNTING DOMAINS)
● Integrated Application Questions: (100 TERM IDENTIFICATION & SCENARIO ITEMS)
Answer Format
All correct term definitions and concept applications must appear in bold and cyan blue,
accompanied by concise rationales explaining the meaning of the accounting term (e.g., "Accrual,"
"Cost of Goods Sold," "Variable Cost"), its role in the accounting cycle or decision-making process,
and why alternative definitions or applications are incorrect based on GAAP or managerial
accounting principles.
1. The fundamental accounting equation is:
● A. Assets = Liabilities – Equity
● B. Assets + Liabilities = Equity
● C. Assets = Liabilities + Equity
● D. Equity = Assets + Liabilities
C. Assets = Liabilities + Equity
This equation is the foundation of double-entry accounting. It states that a company’s resources
(assets) are financed either by creditors (liabilities) or owners (equity). Every transaction affects at
least two accounts to keep this equation in balance.
,2. Which financial statement reports revenues and expenses over a period of time?
● A. Balance Sheet
● B. Statement of Cash Flows
● C. Income Statement
● D. Statement of Retained Earnings
C. Income Statement
The income statement shows a company’s profitability by listing revenues earned and expenses
incurred during a specific period. Net income (or loss) is calculated as Revenues – Expenses.
3. An accrual refers to:
● A. Cash received before revenue is earned
● B. Revenue earned or expense incurred before cash is exchanged
● C. Payment of a liability
● D. Purchase of inventory for cash
B. Revenue earned or expense incurred before cash is exchanged
Accrual accounting recognizes revenues when earned and expenses when incurred, regardless of cash
flow. This aligns with the revenue recognition and matching principles under GAAP.
4. The cost of goods sold (COGS) represents:
● A. Selling and administrative expenses
● B. The cost of inventory sold to customers
● C. The purchase price of ending inventory
● D. Total operating expenses
B. The cost of inventory sold to customers
COGS is a product cost that includes the direct costs of producing or purchasing the goods that were
sold during the period. It is subtracted from net sales to determine gross profit.
5. A variable cost is one that:
● A. Remains constant in total regardless of activity level
● B. Changes in total in direct proportion to changes in activity level
● C. Is always fixed per unit
● D. Includes rent and salaries
B. Changes in total in direct proportion to changes in activity level
, Variable costs (e.g., direct materials, sales commissions) increase as production or sales increase and
decrease when activity declines. Per-unit variable cost remains constant, but total variable cost varies
with volume.
6. Depreciation is an example of a(n):
● A. Accrued expense
● B. Deferred expense (prepaid)
● C. Non-cash expense
● D. Cash outflow
C. Non-cash expense
Depreciation allocates the cost of a long-term asset over its useful life. It reduces net income but does
not involve a cash payment in the period it is recorded, making it a non-cash expense added back in the
statement of cash flows (operating activities).
7. The matching principle requires that:
● A. All transactions be documented
● B. Expenses be recorded in the same period as the revenues they help generate
● C. Assets equal liabilities plus equity
● D. Cash receipts equal cash disbursements
B. Expenses be recorded in the same period as the revenues they help generate
The matching principle ensures accurate measurement of profitability by aligning expenses with the
related revenues in the same accounting period, which is a cornerstone of accrual accounting.
8. Which of the following is a current asset?
● A. Land
● B. Patents
● C. Accounts Receivable
● D. Equipment
C. Accounts Receivable
Current assets are expected to be converted to cash or used within one year or the operating cycle,
whichever is longer. Accounts receivable typically collect within 30–90 days. Land, patents, and
equipment are long-term (non-current) assets.
9. The journal entry to record the purchase of equipment for $10,000 cash is:
● A. Debit Equipment $10,000; Credit Cash $10,000
● B. Debit Cash $10,000; Credit Equipment $10,000
