WGU D196 – Principles of Financial and Managerial Accounting | Objective
Assessment | OA V1 and V2 | Questions and Answers | 2026 Update | 100%
Correct.
1. What is managerial accounting?
Answer: Managerial accounting provides financial and nonfinancial information to internal
users to assist with planning, controlling, and decision-making.
2. Who uses financial accounting information?
Answer: External users such as investors, creditors, regulators, competitors, and the government.
3. What is societal gridlock?
Answer: A breakdown in operations caused by the loss of critical records such as basic
bookkeeping documents.
4. State the basic accounting equation.
Answer:
Assets = Liabilities + Owners’ Equity
5. What happens if the accounting equation does not balance?
Answer: Errors exist in the accounting records and must be corrected.
6. Define assets.
Answer: Resources owned or controlled by a business that provide future economic benefit.
7. Define liabilities.
Answer: Obligations or debts that must be repaid to external parties.
8. Define owners’ equity.
Answer: The residual interest in assets after liabilities are deducted.
9. How do revenues affect equity?
Answer: Revenues increase owners’ equity.
10. How do expenses affect equity?
,Answer: Expenses decrease owners’ equity.
MODULE 2 — THE ACCOUNTING
CYCLE
11. What are the four steps of the accounting cycle?
Answer:
1. Gather and analyze transactions
2. Record transactions (journalize)
3. Summarize information
4. Prepare financial reports
12. What is an exchange transaction?
Answer: A transaction where the business trades one resource for another (e.g., cash for
inventory).
13. What transactions are not recorded?
Answer: Internal transactions that cannot be quantified (e.g., promotions).
14. Define an arm’s-length transaction.
Answer: A transaction between independent parties acting in their own best interest.
15. Difference between Accounts Payable and Notes Payable?
Answer:
Accounts Payable: Short-term obligations to suppliers
Notes Payable: Long-term obligations to lenders
16. What is double-entry accounting?
Answer: Every transaction affects at least two accounts to keep the accounting equation in
balance.
,MODULE 3 — FINANCIAL STATEMENTS
17. Name the three general-purpose financial statements.
Answer:
Balance Sheet
Income Statement
Statement of Cash Flows
18. What does the balance sheet show?
Answer: Financial position at a specific point in time.
19. What does the income statement show?
Answer: Performance (revenues, expenses, net income) over a period of time.
20. What does the statement of cash flows show?
Answer: Cash inflows and outflows from operating, investing, and financing activities.
21. Difference between cash and accrual accounting?
Answer:
Cash: Record when cash is received or paid
Accrual: Record when revenue is earned or expenses incurred
22. What is retained earnings?
Answer: Accumulated profits reinvested in the business.
MODULE 4 — ANALYZING FINANCIAL
STATEMENTS
23. What is horizontal analysis?
Answer: Comparing financial data across time periods using percentages.
, 24. Horizontal analysis formula?
Answer:
(Year 2 – Year 1)÷Year 1×100(\text{Year 2 – Year 1}) ÷ \text{Year 1} ×
100(Year 2 – Year 1)÷Year 1×100
25. What is vertical analysis?
Answer: Expressing financial statement items as a percentage of a base amount (e.g., sales).
26. What are common-size statements?
Answer: Financial statements converted to percentages for easy comparison.
MODULE 5 — CASH BUDGETING
27. What is budgeting?
Answer: Planning future cash inflows and outflows.
28. What are cash flow patterns?
Answer: Trends showing how quickly credit sales are collected.
29. Why forecast cash receipts?
Answer: To anticipate borrowing needs and avoid cash shortages.
MODULE 6 — MASTER BUDGET
30. What is a master budget?
Answer: A comprehensive financial plan summarizing all budgets.
31. Most important budget?
Answer: Sales budget.
Assessment | OA V1 and V2 | Questions and Answers | 2026 Update | 100%
Correct.
1. What is managerial accounting?
Answer: Managerial accounting provides financial and nonfinancial information to internal
users to assist with planning, controlling, and decision-making.
2. Who uses financial accounting information?
Answer: External users such as investors, creditors, regulators, competitors, and the government.
3. What is societal gridlock?
Answer: A breakdown in operations caused by the loss of critical records such as basic
bookkeeping documents.
4. State the basic accounting equation.
Answer:
Assets = Liabilities + Owners’ Equity
5. What happens if the accounting equation does not balance?
Answer: Errors exist in the accounting records and must be corrected.
6. Define assets.
Answer: Resources owned or controlled by a business that provide future economic benefit.
7. Define liabilities.
Answer: Obligations or debts that must be repaid to external parties.
8. Define owners’ equity.
Answer: The residual interest in assets after liabilities are deducted.
9. How do revenues affect equity?
Answer: Revenues increase owners’ equity.
10. How do expenses affect equity?
,Answer: Expenses decrease owners’ equity.
MODULE 2 — THE ACCOUNTING
CYCLE
11. What are the four steps of the accounting cycle?
Answer:
1. Gather and analyze transactions
2. Record transactions (journalize)
3. Summarize information
4. Prepare financial reports
12. What is an exchange transaction?
Answer: A transaction where the business trades one resource for another (e.g., cash for
inventory).
13. What transactions are not recorded?
Answer: Internal transactions that cannot be quantified (e.g., promotions).
14. Define an arm’s-length transaction.
Answer: A transaction between independent parties acting in their own best interest.
15. Difference between Accounts Payable and Notes Payable?
Answer:
Accounts Payable: Short-term obligations to suppliers
Notes Payable: Long-term obligations to lenders
16. What is double-entry accounting?
Answer: Every transaction affects at least two accounts to keep the accounting equation in
balance.
,MODULE 3 — FINANCIAL STATEMENTS
17. Name the three general-purpose financial statements.
Answer:
Balance Sheet
Income Statement
Statement of Cash Flows
18. What does the balance sheet show?
Answer: Financial position at a specific point in time.
19. What does the income statement show?
Answer: Performance (revenues, expenses, net income) over a period of time.
20. What does the statement of cash flows show?
Answer: Cash inflows and outflows from operating, investing, and financing activities.
21. Difference between cash and accrual accounting?
Answer:
Cash: Record when cash is received or paid
Accrual: Record when revenue is earned or expenses incurred
22. What is retained earnings?
Answer: Accumulated profits reinvested in the business.
MODULE 4 — ANALYZING FINANCIAL
STATEMENTS
23. What is horizontal analysis?
Answer: Comparing financial data across time periods using percentages.
, 24. Horizontal analysis formula?
Answer:
(Year 2 – Year 1)÷Year 1×100(\text{Year 2 – Year 1}) ÷ \text{Year 1} ×
100(Year 2 – Year 1)÷Year 1×100
25. What is vertical analysis?
Answer: Expressing financial statement items as a percentage of a base amount (e.g., sales).
26. What are common-size statements?
Answer: Financial statements converted to percentages for easy comparison.
MODULE 5 — CASH BUDGETING
27. What is budgeting?
Answer: Planning future cash inflows and outflows.
28. What are cash flow patterns?
Answer: Trends showing how quickly credit sales are collected.
29. Why forecast cash receipts?
Answer: To anticipate borrowing needs and avoid cash shortages.
MODULE 6 — MASTER BUDGET
30. What is a master budget?
Answer: A comprehensive financial plan summarizing all budgets.
31. Most important budget?
Answer: Sales budget.
