WGU D774 EXAM ACTUAL EXAM 2026 | INTRODUCTION TO BUSINESS
ACCOUNTING EXAM | ALL QUESTIONS AND CORRECT ANSWERS | VERIFIED
ANSWERS | UPDATED VERSION
Question 1
Which fundamental accounting principle requires that a business's activities be kept separate
from the personal activities of its owners?
A) Going Concern Assumption
B) Monetary Unit Assumption
C) Business Entity Concept
D) Time Period Assumption
E) Revenue Recognition Principle
Correct Answer: C) Business Entity Concept
Rationale: The Business Entity Concept (also known as the Economic Entity Assumption)
states that the transactions of a business must be recorded and reported separately from
the personal financial activities of the owners or any other business entity. This ensures that
the financial statements accurately reflect only the performance and position of the specific
business being analyzed. Without this separation, financial data would be skewed by
personal expenses or unrelated investments, making it impossible for stakeholders to assess
the company’s true health.
Question 2
If a company purchases equipment for $10,000 by paying $2,000 in cash and signing a note
payable for the remaining $8,000, how does this affect the accounting equation?
A) Assets increase by $10,000; Liabilities increase by $8,000
B) Assets increase by $8,000; Equity increases by $8,000
C) Assets increase by $8,000; Liabilities increase by $8,000
D) Assets decrease by $2,000; Liabilities increase by $8,000
E) No change to the accounting equation total
Correct Answer: C) Assets increase by $8,000; Liabilities increase by $8,000
Rationale: The accounting equation is Assets = Liabilities + Equity. In this transaction,
Equipment (an asset) increases by $10,000, but Cash (an asset) decreases by $2,000,
, 2
resulting in a net asset increase of $8,000. On the other side of the equation, Notes Payable
(a liability) increases by $8,000. Equity remains unchanged. Thus, both sides of the
equation increase by
8,000(
8,000 asset increase = $8,000 liability increase), maintaining the balance of the equation.
Question 3
Which organization is primarily 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) International Accounting Standards Board (IASB)
D) Internal Revenue Service (IRS)
E) American Institute of Certified Public Accountants (AICPA)
Correct Answer: B) Financial Accounting Standards Board (FASB)
Rationale: The FASB is a private, non-profit organization whose primary purpose is to
establish and improve GAAP within the United States. While the SEC has the legal
authority to set accounting standards for publicly traded companies, it generally delegates
this responsibility to the FASB. The IASB creates international standards (IFRS), and the
IRS focuses on tax law, which often differs significantly from GAAP financial reporting.
Question 4
Under the accrual basis of accounting, when is revenue typically recognized?
A) When the cash is collected from the customer
B) At the end of the fiscal year
C) When the performance obligation is satisfied (product delivered or service performed)
D) When the contract is signed by both parties
E) When the invoice is mailed to the customer
Correct Answer: C) When the performance obligation is satisfied (product delivered or
service performed)
, 3
Rationale: The Revenue Recognition Principle under accrual accounting dictates that
revenue is recognized in the period in which the service is performed or the goods are
delivered, regardless of when the cash is actually received. This provides a more accurate
picture of a company's economic activity during a specific timeframe. Recognition is tied to
the transfer of control or the completion of the work promised to the customer.
Question 5
Which of the following accounts is increased with a debit entry?
A) Accounts Payable
B) Service Revenue
C) Retained Earnings
D) Dividends
E) Common Stock
Correct Answer: D) Dividends
Rationale: Using the DEA-LER mnemonic (Debit: Dividends, Expenses, Assets; Credit:
Liabilities, Equity, Revenue), we can determine that Dividends are increased with a debit.
Dividends represent a distribution of earnings to stockholders and reduce total equity;
therefore, they carry a normal debit balance. Accounts Payable (Liability), Service
Revenue (Revenue), Retained Earnings (Equity), and Common Stock (Equity) all have
normal credit balances and are increased with credits.
Question 6
What is the primary purpose of the Trial Balance?
A) To determine the total net income for the period
B) To ensure that total debits equal total credits in the ledger
C) To report the financial position of the company on a specific date
D) To list the cash inflows and outflows for the period
E) To provide a summary of all changes in equity
Correct Answer: B) To ensure that total debits equal total credits in the ledger
Rationale: The Trial Balance is an internal document prepared at the end of an accounting
period. Its primary function is a mathematical check to confirm that the total of all debit
, 4
balances equals the total of all credit balances. While it helps identify errors in posting or
recording, it does not guarantee that the financial statements are correct (e.g., it won't
catch a transaction that was completely omitted or recorded to the wrong account). It is a
prerequisite step to preparing the formal financial statements.
Question 7
A company receives $3,000 in advance for services to be performed over the next six months.
Which account should be credited at the time the cash is received?
A) Service Revenue
B) Accounts Receivable
C) Unearned Revenue
D) Prepaid Expenses
E) Cash
Correct Answer: C) Unearned Revenue
Rationale: When cash is received before the service is provided, the company has an
obligation to the customer. This obligation is a liability called "Unearned Revenue." Under
the accrual basis, revenue cannot be recognized yet because it hasn't been earned. The
journal entry is a Debit to Cash and a Credit to Unearned Revenue. As the services are
performed over the six-month period, adjusting entries will be made to shift the value from
the liability account to the revenue account.
Question 8
Which of the following is considered a "permanent" account?
A) Rent Expense
B) Sales Revenue
C) Dividends
D) Accounts Receivable
E) Income Summary
Correct Answer: D) Accounts Receivable
Rationale: Permanent (or real) accounts are those found on the Balance Sheet (Assets,
Liabilities, and Equity). Their balances carry over from one fiscal period to the next.
ACCOUNTING EXAM | ALL QUESTIONS AND CORRECT ANSWERS | VERIFIED
ANSWERS | UPDATED VERSION
Question 1
Which fundamental accounting principle requires that a business's activities be kept separate
from the personal activities of its owners?
A) Going Concern Assumption
B) Monetary Unit Assumption
C) Business Entity Concept
D) Time Period Assumption
E) Revenue Recognition Principle
Correct Answer: C) Business Entity Concept
Rationale: The Business Entity Concept (also known as the Economic Entity Assumption)
states that the transactions of a business must be recorded and reported separately from
the personal financial activities of the owners or any other business entity. This ensures that
the financial statements accurately reflect only the performance and position of the specific
business being analyzed. Without this separation, financial data would be skewed by
personal expenses or unrelated investments, making it impossible for stakeholders to assess
the company’s true health.
Question 2
If a company purchases equipment for $10,000 by paying $2,000 in cash and signing a note
payable for the remaining $8,000, how does this affect the accounting equation?
A) Assets increase by $10,000; Liabilities increase by $8,000
B) Assets increase by $8,000; Equity increases by $8,000
C) Assets increase by $8,000; Liabilities increase by $8,000
D) Assets decrease by $2,000; Liabilities increase by $8,000
E) No change to the accounting equation total
Correct Answer: C) Assets increase by $8,000; Liabilities increase by $8,000
Rationale: The accounting equation is Assets = Liabilities + Equity. In this transaction,
Equipment (an asset) increases by $10,000, but Cash (an asset) decreases by $2,000,
, 2
resulting in a net asset increase of $8,000. On the other side of the equation, Notes Payable
(a liability) increases by $8,000. Equity remains unchanged. Thus, both sides of the
equation increase by
8,000(
8,000 asset increase = $8,000 liability increase), maintaining the balance of the equation.
Question 3
Which organization is primarily 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) International Accounting Standards Board (IASB)
D) Internal Revenue Service (IRS)
E) American Institute of Certified Public Accountants (AICPA)
Correct Answer: B) Financial Accounting Standards Board (FASB)
Rationale: The FASB is a private, non-profit organization whose primary purpose is to
establish and improve GAAP within the United States. While the SEC has the legal
authority to set accounting standards for publicly traded companies, it generally delegates
this responsibility to the FASB. The IASB creates international standards (IFRS), and the
IRS focuses on tax law, which often differs significantly from GAAP financial reporting.
Question 4
Under the accrual basis of accounting, when is revenue typically recognized?
A) When the cash is collected from the customer
B) At the end of the fiscal year
C) When the performance obligation is satisfied (product delivered or service performed)
D) When the contract is signed by both parties
E) When the invoice is mailed to the customer
Correct Answer: C) When the performance obligation is satisfied (product delivered or
service performed)
, 3
Rationale: The Revenue Recognition Principle under accrual accounting dictates that
revenue is recognized in the period in which the service is performed or the goods are
delivered, regardless of when the cash is actually received. This provides a more accurate
picture of a company's economic activity during a specific timeframe. Recognition is tied to
the transfer of control or the completion of the work promised to the customer.
Question 5
Which of the following accounts is increased with a debit entry?
A) Accounts Payable
B) Service Revenue
C) Retained Earnings
D) Dividends
E) Common Stock
Correct Answer: D) Dividends
Rationale: Using the DEA-LER mnemonic (Debit: Dividends, Expenses, Assets; Credit:
Liabilities, Equity, Revenue), we can determine that Dividends are increased with a debit.
Dividends represent a distribution of earnings to stockholders and reduce total equity;
therefore, they carry a normal debit balance. Accounts Payable (Liability), Service
Revenue (Revenue), Retained Earnings (Equity), and Common Stock (Equity) all have
normal credit balances and are increased with credits.
Question 6
What is the primary purpose of the Trial Balance?
A) To determine the total net income for the period
B) To ensure that total debits equal total credits in the ledger
C) To report the financial position of the company on a specific date
D) To list the cash inflows and outflows for the period
E) To provide a summary of all changes in equity
Correct Answer: B) To ensure that total debits equal total credits in the ledger
Rationale: The Trial Balance is an internal document prepared at the end of an accounting
period. Its primary function is a mathematical check to confirm that the total of all debit
, 4
balances equals the total of all credit balances. While it helps identify errors in posting or
recording, it does not guarantee that the financial statements are correct (e.g., it won't
catch a transaction that was completely omitted or recorded to the wrong account). It is a
prerequisite step to preparing the formal financial statements.
Question 7
A company receives $3,000 in advance for services to be performed over the next six months.
Which account should be credited at the time the cash is received?
A) Service Revenue
B) Accounts Receivable
C) Unearned Revenue
D) Prepaid Expenses
E) Cash
Correct Answer: C) Unearned Revenue
Rationale: When cash is received before the service is provided, the company has an
obligation to the customer. This obligation is a liability called "Unearned Revenue." Under
the accrual basis, revenue cannot be recognized yet because it hasn't been earned. The
journal entry is a Debit to Cash and a Credit to Unearned Revenue. As the services are
performed over the six-month period, adjusting entries will be made to shift the value from
the liability account to the revenue account.
Question 8
Which of the following is considered a "permanent" account?
A) Rent Expense
B) Sales Revenue
C) Dividends
D) Accounts Receivable
E) Income Summary
Correct Answer: D) Accounts Receivable
Rationale: Permanent (or real) accounts are those found on the Balance Sheet (Assets,
Liabilities, and Equity). Their balances carry over from one fiscal period to the next.
