WGU D774 Introduction to Business
Accounting - Objective Assessment Practice
Exam 200 Questions with Correct Answers
and Explanations
Section 1: Foundational Accounting Concepts & Principles
1. What is the primary purpose of financial accounting?
A) To forecast future sales and create internal budgets
B) To provide standardized financial information to external users like investors and
creditors
C) To calculate tax liabilities for government agencies
D) To track daily cash flow for operational management
Correct Answer: B
Explanation: Financial accounting focuses on creating standardized reports (financial
statements) for external stakeholders such as investors and creditors. Internal budgeting
(A) and operational tracking (D) are roles of managerial accounting, while tax calculation
(C) is a specialized function .
2. Which organization is responsible for establishing Generally Accepted
Accounting Principles (GAAP) in the United States?
A) Securities and Exchange Commission (SEC)
B) Financial Accounting Standards Board (FASB)
C) Internal Revenue Service (IRS)
D) Public Company Accounting Oversight Board (PCAOB)
Correct Answer: B
,Explanation: The FASB is the independent, private-sector organization designated by the
SEC to set and improve GAAP for private and public sector businesses in the U.S.
3. Which major accounting scandal directly led to the creation of the Sarbanes-
Oxley Act (SOX) of 2002?
A) The savings and loan crisis of the 1980s
B) The fraudulent practices of Enron, WorldCom, and Tyco
C) The 2008 financial crisis caused by subprime mortgages
D) The Ponzi scheme run by Bernie Madoff
Correct Answer: B
Explanation: The massive corporate fraud at Enron, WorldCom, Tyco, and others shook
investor confidence and prompted Congress to pass the Sarbanes-Oxley Act, which
established stricter corporate governance, internal controls, and audit requirements .
4. What is the function of the Public Company Accounting Oversight Board
(PCAOB)?
A) To create accounting principles for non-profit organizations
B) To set ethical standards for Chartered Financial Analysts (CFAs)
C) To oversee the audits of public companies to protect investor interests
D) To manage initial public offerings (IPOs) of new companies
Correct Answer: C
Explanation: Created by the Sarbanes-Oxley Act, the PCAOB is a non-profit corporation
that oversees the audits of public companies to ensure they are accurate, independent,
and free from fraud, thus protecting investors .
5. According to the Revenue Recognition Principle, when should a company record
revenue?
,A) When a customer places a signed purchase order
B) When cash is received from the customer
C) When the performance obligation is satisfied (goods delivered or services performed)
D) At the end of the accounting period, regardless of transaction date
Correct Answer: C
Explanation: The revenue recognition principle is a cornerstone of accrual accounting. It
dictates that revenue is recorded when it is earned—when the company has provided
goods or services to the customer, not when payment is received .
6. The Matching Principle in accounting requires that:
A) Total assets must equal total liabilities plus equity on every transaction
B) Revenue be recorded at the same time as cash receipt
C) Expenses be recorded in the same period as the revenues they helped to generate
D) All financial statements be prepared using the cash basis of accounting
Correct Answer: C
Explanation: The matching principle guides expense recognition. It ensures costs are
matched with associated revenues in the same period to accurately calculate net income .
7. A company using accrual basis accounting pays $12,000 for a 12-month
insurance policy on September 1st. On December 31st, how much insurance
expense should be reported on the income statement?
A) $12,000
B) $4,000
C) $1,000
D) $0
Correct Answer: B
, Explanation: The policy covers 4 months (September, October, November, December) of
the 12-month period. Expense recognized: ($12,000 ÷ 12 months) × 4 months = $4,000.
The remaining $8,000 is a prepaid asset on the balance sheet .
8. A company provides services worth $5,000 in December but does not receive
cash payment until January. Under the cash basis of accounting, how will this
transaction be recorded?
A) Revenue of $5,000 in December
B) Revenue of $5,000 in January
C) Revenue of $5,000 split between December and January
D) No revenue recorded at all
Correct Answer: B
Explanation: Cash basis accounting recognizes revenue only when cash is received,
regardless of when services are performed. This contrasts with accrual accounting, which
recognizes revenue when earned .
9. Which of the following is an example of an intangible asset?
A) Equipment
B) Trademark
C) Inventory
D) Cash
Correct Answer: B
Explanation: Intangible assets lack physical substance but have value. Examples include
trademarks, patents, copyrights, and goodwill. Equipment, inventory, and cash are all
tangible assets .
10. What is the primary difference between financial and managerial accounting?
Accounting - Objective Assessment Practice
Exam 200 Questions with Correct Answers
and Explanations
Section 1: Foundational Accounting Concepts & Principles
1. What is the primary purpose of financial accounting?
A) To forecast future sales and create internal budgets
B) To provide standardized financial information to external users like investors and
creditors
C) To calculate tax liabilities for government agencies
D) To track daily cash flow for operational management
Correct Answer: B
Explanation: Financial accounting focuses on creating standardized reports (financial
statements) for external stakeholders such as investors and creditors. Internal budgeting
(A) and operational tracking (D) are roles of managerial accounting, while tax calculation
(C) is a specialized function .
2. Which organization is responsible for establishing Generally Accepted
Accounting Principles (GAAP) in the United States?
A) Securities and Exchange Commission (SEC)
B) Financial Accounting Standards Board (FASB)
C) Internal Revenue Service (IRS)
D) Public Company Accounting Oversight Board (PCAOB)
Correct Answer: B
,Explanation: The FASB is the independent, private-sector organization designated by the
SEC to set and improve GAAP for private and public sector businesses in the U.S.
3. Which major accounting scandal directly led to the creation of the Sarbanes-
Oxley Act (SOX) of 2002?
A) The savings and loan crisis of the 1980s
B) The fraudulent practices of Enron, WorldCom, and Tyco
C) The 2008 financial crisis caused by subprime mortgages
D) The Ponzi scheme run by Bernie Madoff
Correct Answer: B
Explanation: The massive corporate fraud at Enron, WorldCom, Tyco, and others shook
investor confidence and prompted Congress to pass the Sarbanes-Oxley Act, which
established stricter corporate governance, internal controls, and audit requirements .
4. What is the function of the Public Company Accounting Oversight Board
(PCAOB)?
A) To create accounting principles for non-profit organizations
B) To set ethical standards for Chartered Financial Analysts (CFAs)
C) To oversee the audits of public companies to protect investor interests
D) To manage initial public offerings (IPOs) of new companies
Correct Answer: C
Explanation: Created by the Sarbanes-Oxley Act, the PCAOB is a non-profit corporation
that oversees the audits of public companies to ensure they are accurate, independent,
and free from fraud, thus protecting investors .
5. According to the Revenue Recognition Principle, when should a company record
revenue?
,A) When a customer places a signed purchase order
B) When cash is received from the customer
C) When the performance obligation is satisfied (goods delivered or services performed)
D) At the end of the accounting period, regardless of transaction date
Correct Answer: C
Explanation: The revenue recognition principle is a cornerstone of accrual accounting. It
dictates that revenue is recorded when it is earned—when the company has provided
goods or services to the customer, not when payment is received .
6. The Matching Principle in accounting requires that:
A) Total assets must equal total liabilities plus equity on every transaction
B) Revenue be recorded at the same time as cash receipt
C) Expenses be recorded in the same period as the revenues they helped to generate
D) All financial statements be prepared using the cash basis of accounting
Correct Answer: C
Explanation: The matching principle guides expense recognition. It ensures costs are
matched with associated revenues in the same period to accurately calculate net income .
7. A company using accrual basis accounting pays $12,000 for a 12-month
insurance policy on September 1st. On December 31st, how much insurance
expense should be reported on the income statement?
A) $12,000
B) $4,000
C) $1,000
D) $0
Correct Answer: B
, Explanation: The policy covers 4 months (September, October, November, December) of
the 12-month period. Expense recognized: ($12,000 ÷ 12 months) × 4 months = $4,000.
The remaining $8,000 is a prepaid asset on the balance sheet .
8. A company provides services worth $5,000 in December but does not receive
cash payment until January. Under the cash basis of accounting, how will this
transaction be recorded?
A) Revenue of $5,000 in December
B) Revenue of $5,000 in January
C) Revenue of $5,000 split between December and January
D) No revenue recorded at all
Correct Answer: B
Explanation: Cash basis accounting recognizes revenue only when cash is received,
regardless of when services are performed. This contrasts with accrual accounting, which
recognizes revenue when earned .
9. Which of the following is an example of an intangible asset?
A) Equipment
B) Trademark
C) Inventory
D) Cash
Correct Answer: B
Explanation: Intangible assets lack physical substance but have value. Examples include
trademarks, patents, copyrights, and goodwill. Equipment, inventory, and cash are all
tangible assets .
10. What is the primary difference between financial and managerial accounting?
