WGU D102
Financial Accounting OA + Excel
Walkthrough
Questions with Detailed Answers| Latest Update
Page 1
,Q1. What is the basic accounting equation?
Answer & Rationale:
Assets = Liabilities + Equity. Rationale: This equation reflects the fact that
everything a company owns (assets) was financed either by borrowing
(liabilities) or by owners' contributions and retained profits (equity). Every
transaction must keep this equation in balance, which is the foundation of
double-entry bookkeeping.
Q2. What is the difference between financial accounting and managerial
accounting?
Answer & Rationale:
Financial accounting produces standardized reports (like the income
statement and balance sheet) for external users such as investors,
creditors, and regulators, following GAAP. Managerial accounting
produces internal reports for management decision-making and is not
required to follow GAAP. Rationale: The distinction matters on the OA
because it tests whether a report/analysis is meant for external compliance
or internal planning.
Q3. What does GAAP stand for and why is it important?
Answer & Rationale:
Generally Accepted Accounting Principles. Rationale: GAAP provides a
consistent, standardized framework so that financial statements are
comparable across companies and reliable for external users like investors
and lenders; the FASB is the primary body that establishes GAAP in the
United States.
Q4. What is the going concern assumption?
Answer & Rationale:
The going concern assumption presumes a business will continue
operating in the foreseeable future rather than being liquidated. Rationale:
This assumption justifies valuing assets at historical cost rather than
liquidation value and allows for deferring expenses (like depreciation) over
an asset's useful life.
Page 2
, Q5. What is the difference between an asset and a liability?
Answer & Rationale:
An asset is a resource owned or controlled by the company that provides
future economic benefit (e.g., cash, inventory, equipment). A liability is an
obligation owed to an outside party that will require a future outflow of
resources (e.g., accounts payable, loans). Rationale: Correctly classifying
accounts is essential for building an accurate balance sheet.
Q6. What is equity (owner's/stockholders' equity)?
Answer & Rationale:
Equity represents the owners' residual claim on the company's assets after
liabilities are subtracted (Assets - Liabilities = Equity). Rationale: For a
corporation, equity includes common stock and retained earnings; for a
sole proprietorship, it is typically shown as owner's capital.
Q7. What is the revenue recognition principle?
Answer & Rationale:
Revenue is recognized when it is earned — that is, when goods are
delivered or services are performed — regardless of when cash is
received. Rationale: Under accrual accounting (ASC 606), this ensures
revenue is matched to the period in which the company actually fulfilled its
obligation to the customer, not simply when payment happens to be
collected.
Q8. What is the matching principle?
Answer & Rationale:
The matching principle requires that expenses be recorded in the same
period as the revenues they helped generate. Rationale: This principle is
why adjusting entries such as depreciation and accrued expenses are
necessary — it ensures net income for a period accurately reflects the true
cost of earning that period's revenue.
Page 3
Financial Accounting OA + Excel
Walkthrough
Questions with Detailed Answers| Latest Update
Page 1
,Q1. What is the basic accounting equation?
Answer & Rationale:
Assets = Liabilities + Equity. Rationale: This equation reflects the fact that
everything a company owns (assets) was financed either by borrowing
(liabilities) or by owners' contributions and retained profits (equity). Every
transaction must keep this equation in balance, which is the foundation of
double-entry bookkeeping.
Q2. What is the difference between financial accounting and managerial
accounting?
Answer & Rationale:
Financial accounting produces standardized reports (like the income
statement and balance sheet) for external users such as investors,
creditors, and regulators, following GAAP. Managerial accounting
produces internal reports for management decision-making and is not
required to follow GAAP. Rationale: The distinction matters on the OA
because it tests whether a report/analysis is meant for external compliance
or internal planning.
Q3. What does GAAP stand for and why is it important?
Answer & Rationale:
Generally Accepted Accounting Principles. Rationale: GAAP provides a
consistent, standardized framework so that financial statements are
comparable across companies and reliable for external users like investors
and lenders; the FASB is the primary body that establishes GAAP in the
United States.
Q4. What is the going concern assumption?
Answer & Rationale:
The going concern assumption presumes a business will continue
operating in the foreseeable future rather than being liquidated. Rationale:
This assumption justifies valuing assets at historical cost rather than
liquidation value and allows for deferring expenses (like depreciation) over
an asset's useful life.
Page 2
, Q5. What is the difference between an asset and a liability?
Answer & Rationale:
An asset is a resource owned or controlled by the company that provides
future economic benefit (e.g., cash, inventory, equipment). A liability is an
obligation owed to an outside party that will require a future outflow of
resources (e.g., accounts payable, loans). Rationale: Correctly classifying
accounts is essential for building an accurate balance sheet.
Q6. What is equity (owner's/stockholders' equity)?
Answer & Rationale:
Equity represents the owners' residual claim on the company's assets after
liabilities are subtracted (Assets - Liabilities = Equity). Rationale: For a
corporation, equity includes common stock and retained earnings; for a
sole proprietorship, it is typically shown as owner's capital.
Q7. What is the revenue recognition principle?
Answer & Rationale:
Revenue is recognized when it is earned — that is, when goods are
delivered or services are performed — regardless of when cash is
received. Rationale: Under accrual accounting (ASC 606), this ensures
revenue is matched to the period in which the company actually fulfilled its
obligation to the customer, not simply when payment happens to be
collected.
Q8. What is the matching principle?
Answer & Rationale:
The matching principle requires that expenses be recorded in the same
period as the revenues they helped generate. Rationale: This principle is
why adjusting entries such as depreciation and accrued expenses are
necessary — it ensures net income for a period accurately reflects the true
cost of earning that period's revenue.
Page 3
