WGU D196 PRINCIPLES OF FINANCIAL AND
MANAGERIAL ACCOUNTING | 2026 STUDY GUIDE FOR
EXAM PREP CORRECT QUESTIONS AND ANSWERS
~WESTERN GOVERNORS UNIVERSITY
TEST STUDY GUIDE:
MODULE 1:
1. What is the role and purpose of accounting?
o To collect and report financial information about the performance, financial
position, and cash flow of a business used to make decisions for and about the
business
2. Who uses accounting information and why?
o Businesses: use accounting to analyze transactions, handle routine
bookkeeping tasks, structure information used to evaluate the performance of
a company
o Creditors
o Investors
o Decision makers inside and outside of the company: use accounting to set
aside resources, evaluate performance, determine a company’s profitability
3. 3 factors that influence the accounting environment?
o 1. “Generally Accepted Accounting Principles” (GAAP)
o 2. International business
o 3. Ethical considerations
4. What is the role of ethics in accounting?
o Accounting decisions often impact real-world economic decisions, so
accountants should be ethical and remain “unbiased”
TERMS:
Creditors: Individuals/ businesses that have lent funds to a company and are owed money
Managerial Accounting: INTERNAL decision making such as product costs, break-even
analysis, budgeting, and performance evaluation
Financial Accounting: EXTERNAL decision making such as Investors and Creditors
Credit Analysis: Financial analysis on a company that measures the issuer’s ability to pay off
,debt
Balance Sheet: Reports a company’s assets, liabilities, and owners’ equity
, Assets (Owned): Something valuable or useful the company owns; anything with
economic value to a company (current or future; EXAMPLES: cash and cash equivalents,
trademarks, buildings, and real estate
Liabilities (Owed): Debts or obligations in which a company owes money; EXAMPLES:
Bank account overdrafts, accounts payable
Owner’s Equity: The amount that belongs to the business owners; the owners rights to the
assets of a business
Income Statement: Reports the amount of net income earned by a company
NET INCOME = REVENUE – EXPENSES
Net Income: the amount a business makes after the expenses are deducted
Statement of Cash Flows: Reports the amount of cash collected and paid out by a company in the
following money collecting/ spending groups:
1. Operating: (payments to employees, taxes, payments to suppliers, cash receipts form
goods sold)
2. Investing: (real estate, stocks)
3. Financing: (borrowing money, issuing bonds payable)
Financial Accounting Standards Board (FASB): Non-government agency in the US that sets the
accounting standards for publicly listed companies (stocks)
Generally Accepted Accounting Principles (GAAP): Rules governing financial accounting
Governmental Accounting Standards Board (GASB): Seta up the accounting and financial
reporting standards for the state and local governments
International Accounting Standards Board (IASB): Develops international accounting standards
to harmonize conflicting national standards
, MODULE 2:
1. What are the 4 steps of the Accounting Cycle and how does it work?
1. Analyze transactions
a. Have a system in place to figure out what the external and internal
transactions were for and how much they were. EXAMPLES: sale and
delivery of a product, payment to employees, and borrowing money
from the bank
2. Record the effects of the transactions
a. Design a system or software that defines the impact and effect of the
transactions
b. Debits (money going into an account) and Credits (money flowing out
of an account)
3. Summarize the transaction
a. Condense the effect of the many transactions within the business
4. Prepare reports
a. Determine what the decision-makers need to know and prepare a
report
The purpose of the accounting cycle is to record and organize business transactions from
start to finish and turn transactions into financial statements used for decision making
2. What is the Accounting Equation?
- “Basic” Accounting Equation
ASSETS =LIABILITIES + EQUITY (think ALE)
What’s in the business (ASSETS) and where did it come from (LIABILITIES
AND EQUITY)
EXAMPLE:
- Start a business by investing $50,000
- Borrow $25,000 from the bank
- Purchased inventory on credit for $14,000
MANAGERIAL ACCOUNTING | 2026 STUDY GUIDE FOR
EXAM PREP CORRECT QUESTIONS AND ANSWERS
~WESTERN GOVERNORS UNIVERSITY
TEST STUDY GUIDE:
MODULE 1:
1. What is the role and purpose of accounting?
o To collect and report financial information about the performance, financial
position, and cash flow of a business used to make decisions for and about the
business
2. Who uses accounting information and why?
o Businesses: use accounting to analyze transactions, handle routine
bookkeeping tasks, structure information used to evaluate the performance of
a company
o Creditors
o Investors
o Decision makers inside and outside of the company: use accounting to set
aside resources, evaluate performance, determine a company’s profitability
3. 3 factors that influence the accounting environment?
o 1. “Generally Accepted Accounting Principles” (GAAP)
o 2. International business
o 3. Ethical considerations
4. What is the role of ethics in accounting?
o Accounting decisions often impact real-world economic decisions, so
accountants should be ethical and remain “unbiased”
TERMS:
Creditors: Individuals/ businesses that have lent funds to a company and are owed money
Managerial Accounting: INTERNAL decision making such as product costs, break-even
analysis, budgeting, and performance evaluation
Financial Accounting: EXTERNAL decision making such as Investors and Creditors
Credit Analysis: Financial analysis on a company that measures the issuer’s ability to pay off
,debt
Balance Sheet: Reports a company’s assets, liabilities, and owners’ equity
, Assets (Owned): Something valuable or useful the company owns; anything with
economic value to a company (current or future; EXAMPLES: cash and cash equivalents,
trademarks, buildings, and real estate
Liabilities (Owed): Debts or obligations in which a company owes money; EXAMPLES:
Bank account overdrafts, accounts payable
Owner’s Equity: The amount that belongs to the business owners; the owners rights to the
assets of a business
Income Statement: Reports the amount of net income earned by a company
NET INCOME = REVENUE – EXPENSES
Net Income: the amount a business makes after the expenses are deducted
Statement of Cash Flows: Reports the amount of cash collected and paid out by a company in the
following money collecting/ spending groups:
1. Operating: (payments to employees, taxes, payments to suppliers, cash receipts form
goods sold)
2. Investing: (real estate, stocks)
3. Financing: (borrowing money, issuing bonds payable)
Financial Accounting Standards Board (FASB): Non-government agency in the US that sets the
accounting standards for publicly listed companies (stocks)
Generally Accepted Accounting Principles (GAAP): Rules governing financial accounting
Governmental Accounting Standards Board (GASB): Seta up the accounting and financial
reporting standards for the state and local governments
International Accounting Standards Board (IASB): Develops international accounting standards
to harmonize conflicting national standards
, MODULE 2:
1. What are the 4 steps of the Accounting Cycle and how does it work?
1. Analyze transactions
a. Have a system in place to figure out what the external and internal
transactions were for and how much they were. EXAMPLES: sale and
delivery of a product, payment to employees, and borrowing money
from the bank
2. Record the effects of the transactions
a. Design a system or software that defines the impact and effect of the
transactions
b. Debits (money going into an account) and Credits (money flowing out
of an account)
3. Summarize the transaction
a. Condense the effect of the many transactions within the business
4. Prepare reports
a. Determine what the decision-makers need to know and prepare a
report
The purpose of the accounting cycle is to record and organize business transactions from
start to finish and turn transactions into financial statements used for decision making
2. What is the Accounting Equation?
- “Basic” Accounting Equation
ASSETS =LIABILITIES + EQUITY (think ALE)
What’s in the business (ASSETS) and where did it come from (LIABILITIES
AND EQUITY)
EXAMPLE:
- Start a business by investing $50,000
- Borrow $25,000 from the bank
- Purchased inventory on credit for $14,000
