WGU C213 Accounting for Decision Makers |
Western Governors University | Academic
Year 2026/2027
Section 1: Financial Accounting Fundamentals & the Accounting Cycle
Question 1
Which of the following best describes the primary objective of financial
accounting?
A) To provide management with detailed information for daily operational
decisions
B) To provide external stakeholders with reliable financial information about a
company's performance and financial position
C) To minimize a company's tax liability
D) To provide employees with salary information
E) To track individual departmental expenses for cost allocation
Correct Answer: B
Rationale: Financial accounting is primarily designed to communicate
financial information to external users such as investors, creditors, and regulators.
This differs from managerial accounting, which focuses on internal decision-
making. External stakeholders rely on financial statements prepared under
Generally Accepted Accounting Principles (GAAP) to assess profitability, solvency,
and overall financial health .
Question 2
Under the accrual basis of accounting, when should revenue be recognized?
A) When cash is received from the customer
B) When the product is shipped or service is completed, regardless of when cash
is received
C) When the invoice is prepared
,D) When the customer places an order
E) When the company pays its suppliers
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when it has been
earned, not when cash changes hands. This principle ensures revenue is matched
with the period in which the performance obligation is satisfied, providing a more
accurate picture of economic activity than cash basis accounting .
Question 3
Which accounting principle requires that expenses be matched with the revenues
they help generate?
A) Going concern principle
B) Consistency principle
C) Matching principle
D) Conservatism principle
E) Full disclosure principle
Correct Answer: C
Rationale: The matching principle is a fundamental accrual accounting
concept. It requires expenses incurred to generate revenue be recorded in the
same period as the revenue. This creates more meaningful comparison of
revenues and expenses and provides clearer profitability analysis .
Question 4
What is the primary purpose of the Statement of Cash Flows?
A) To show the profitability of the company
B) To explain changes in stockholders' equity
C) To reconcile net income with the actual cash received and paid during the
period
D) To list all assets and liabilities
E) To calculate the company's debt-to-equity ratio
, Correct Answer: C
Rationale: The Statement of Cash Flows is divided into operating,
investing, and financing activities and shows how cash moved in and out of the
company. This is critical because a profitable company may still face cash flow
problems. Understanding sources and uses of cash is essential for assessing
liquidity and operational efficiency .
Question 5
Which of the following would be classified as a current liability?
A) Mortgage payable (due in 20 years)
B) Bonds payable (due in 10 years)
C) Accounts payable to suppliers
D) Deferred revenue (cash received for services to be provided in 3 years)
E) Equipment lease (final payment due in 5 years)
Correct Answer: C
Rationale: Current liabilities are obligations expected to be satisfied within
one year or the company's operating cycle, whichever is longer. Accounts payable
(money owed to suppliers for goods purchased on credit) is typically paid within
30–90 days and is therefore a current liability .
Question 6
How does the purchase of inventory on account affect the balance sheet?
A) Assets decrease and equity decreases
B) Assets increase and liabilities increase
C) Assets increase and equity increases
D) Liabilities increase and equity decreases
E) No effect on the balance sheet
Correct Answer: B
, Rationale: Purchasing inventory on account increases the asset Inventory
and increases the liability Accounts Payable. The accounting equation (Assets =
Liabilities + Equity) remains balanced because both sides increase by the same
amount .
Question 7
Which financial statement reports a company's financial position at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
E) Statement of Comprehensive Income
Correct Answer: C
Rationale: The balance sheet reports assets, liabilities, and owners' equity
at a specific point in time, providing a snapshot of financial position. The income
statement covers a period of time, the statement of cash flows tracks cash
movements over time, and the statement of retained earnings focuses on
changes in retained earnings over a period .
Question 8
What is the fundamental accounting equation?
A) Revenues – Expenses = Net Income
B) Assets = Liabilities + Equity
C) Cash Flows = Operating + Investing + Financing
D) Assets – Liabilities = Net Worth
E) Liabilities = Assets + Equity
Correct Answer: B
Western Governors University | Academic
Year 2026/2027
Section 1: Financial Accounting Fundamentals & the Accounting Cycle
Question 1
Which of the following best describes the primary objective of financial
accounting?
A) To provide management with detailed information for daily operational
decisions
B) To provide external stakeholders with reliable financial information about a
company's performance and financial position
C) To minimize a company's tax liability
D) To provide employees with salary information
E) To track individual departmental expenses for cost allocation
Correct Answer: B
Rationale: Financial accounting is primarily designed to communicate
financial information to external users such as investors, creditors, and regulators.
This differs from managerial accounting, which focuses on internal decision-
making. External stakeholders rely on financial statements prepared under
Generally Accepted Accounting Principles (GAAP) to assess profitability, solvency,
and overall financial health .
Question 2
Under the accrual basis of accounting, when should revenue be recognized?
A) When cash is received from the customer
B) When the product is shipped or service is completed, regardless of when cash
is received
C) When the invoice is prepared
,D) When the customer places an order
E) When the company pays its suppliers
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when it has been
earned, not when cash changes hands. This principle ensures revenue is matched
with the period in which the performance obligation is satisfied, providing a more
accurate picture of economic activity than cash basis accounting .
Question 3
Which accounting principle requires that expenses be matched with the revenues
they help generate?
A) Going concern principle
B) Consistency principle
C) Matching principle
D) Conservatism principle
E) Full disclosure principle
Correct Answer: C
Rationale: The matching principle is a fundamental accrual accounting
concept. It requires expenses incurred to generate revenue be recorded in the
same period as the revenue. This creates more meaningful comparison of
revenues and expenses and provides clearer profitability analysis .
Question 4
What is the primary purpose of the Statement of Cash Flows?
A) To show the profitability of the company
B) To explain changes in stockholders' equity
C) To reconcile net income with the actual cash received and paid during the
period
D) To list all assets and liabilities
E) To calculate the company's debt-to-equity ratio
, Correct Answer: C
Rationale: The Statement of Cash Flows is divided into operating,
investing, and financing activities and shows how cash moved in and out of the
company. This is critical because a profitable company may still face cash flow
problems. Understanding sources and uses of cash is essential for assessing
liquidity and operational efficiency .
Question 5
Which of the following would be classified as a current liability?
A) Mortgage payable (due in 20 years)
B) Bonds payable (due in 10 years)
C) Accounts payable to suppliers
D) Deferred revenue (cash received for services to be provided in 3 years)
E) Equipment lease (final payment due in 5 years)
Correct Answer: C
Rationale: Current liabilities are obligations expected to be satisfied within
one year or the company's operating cycle, whichever is longer. Accounts payable
(money owed to suppliers for goods purchased on credit) is typically paid within
30–90 days and is therefore a current liability .
Question 6
How does the purchase of inventory on account affect the balance sheet?
A) Assets decrease and equity decreases
B) Assets increase and liabilities increase
C) Assets increase and equity increases
D) Liabilities increase and equity decreases
E) No effect on the balance sheet
Correct Answer: B
, Rationale: Purchasing inventory on account increases the asset Inventory
and increases the liability Accounts Payable. The accounting equation (Assets =
Liabilities + Equity) remains balanced because both sides increase by the same
amount .
Question 7
Which financial statement reports a company's financial position at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
E) Statement of Comprehensive Income
Correct Answer: C
Rationale: The balance sheet reports assets, liabilities, and owners' equity
at a specific point in time, providing a snapshot of financial position. The income
statement covers a period of time, the statement of cash flows tracks cash
movements over time, and the statement of retained earnings focuses on
changes in retained earnings over a period .
Question 8
What is the fundamental accounting equation?
A) Revenues – Expenses = Net Income
B) Assets = Liabilities + Equity
C) Cash Flows = Operating + Investing + Financing
D) Assets – Liabilities = Net Worth
E) Liabilities = Assets + Equity
Correct Answer: B
