WGU C214 OA Financial Management Exam
2026/2027: Actual Questions with Verified
Answers – 100% Updated Comprehensive
Practice Exam – Graded A+
COMPETENCY 1: FINANCIAL ACCOUNTING FUNDAMENTALS (Questions
1-25)
Q1: The matching principle in accrual accounting requires that:
A. Revenues be recognized when the earnings process is complete and matches
expenses to revenues recognized
B. Expenses are matched to the year in which they are incurred
C. Revenues are matched to the year in which they are booked
D. Revenues should be large enough to match expenses
Correct Answer: A ✅
Rationale: The matching principle requires that revenues be recognized when earned
(earnings process complete) and that expenses be matched to those revenues in the
same period. This ensures accurate profit measurement. Option B describes cash basis
accounting, not accrual matching. Option C ignores the expense matching requirement.
Option D is not an accounting principle—revenue recognition is based on earning, not
sizing to match expenses.
(Competency: 1-Accounting | Difficulty: Easy)
,Q2: A basic equation for the balance sheet is:
A. Equity = Assets - Liabilities
B. Liabilities = Equity + Assets
C. Assets = Liabilities - Equity
D. Assets = Equity - Liabilities
Correct Answer: A ✅
Rationale: The fundamental accounting equation is Assets = Liabilities + Equity, which
can be algebraically rearranged to Equity = Assets - Liabilities. This shows that owners'
claim equals what the company owns minus what it owes. Options B, C, and D
incorrectly represent the mathematical relationship between these three elements and
would produce incorrect financial statements.
(Competency: 1-Accounting | Difficulty: Easy)
Q3: Why is the Balance Sheet known as a permanent statement?
A. Because the statement is sent to the SEC
B. Because the other statements are reset at the end of the fiscal year
C. Because it is printed out and archived
D. Because it persists in the minds of the shareholders
Correct Answer: B ✅
,Rationale: The balance sheet is considered "permanent" because its accounts (assets,
liabilities, equity) carry forward from year to year as beginning balances, unlike income
statement accounts (revenues, expenses) and cash flow categories which are reset to
zero at fiscal year-end. This permanence allows tracking of cumulative financial position
over time.
(Competency: 1-Accounting | Difficulty: Easy)
Q4: How do you calculate the change in Retained Earnings?
A. Ending Retained Earnings - Change in Cash
B. EBIT divided by Total Assets + Dividends
C. EBIT - Change in Cash - Dividends
D. Net Income - Dividends
Correct Answer: D ✅
Rationale: The change in retained earnings equals Net Income minus Dividends paid.
This represents the portion of current earnings kept in the business rather than
distributed to shareholders. Beginning retained earnings plus this change equals ending
retained earnings. Options A, B, and C incorrectly mix unrelated concepts (cash
changes, EBIT, asset turnover) into the retained earnings calculation.
(Competency: 1-Accounting | Difficulty: Easy)
Q5: Which of the following is generally true?
A. Gross Profit and Operating Income are the same
, B. Cost of Goods Sold + Operating Expenses = Net Income
C. Operating Income and EBIT are the same
D. EBIT + Income Taxes = Net income
Correct Answer: C ✅
Rationale: Operating Income and EBIT (Earnings Before Interest and Taxes) are identical
measures of profitability from core business operations. Gross Profit (A) is revenue
minus COGS, excluding operating expenses. COGS + Operating Expenses = Total
Expenses, not Net Income (B)—revenue must be included. Net Income = EBIT - Interest -
Taxes, so EBIT + Taxes (D) incorrectly adds rather than subtracts taxes.
(Competency: 1-Accounting | Difficulty: Medium)
Q6: Which components are part of total assets?
A. Cash, Accounts Receivable, Short Term Debt
B. Cash, Accounts Receivable, Inventory, Long Term Assets
C. Accounts Payable, Long Term Assets, Long Term Debt
D. Accounts Payable, Net Income, Equity
Correct Answer: B ✅
Rationale: Total assets include current assets (cash, accounts receivable, inventory)
plus long-term assets (property, plant, equipment, investments). Short-term debt (A) is a
liability. Accounts payable (C, D) are liabilities. Net income (D) flows to equity but is not
an asset. Understanding the asset/liability/equity distinction is fundamental to financial
statement analysis.
2026/2027: Actual Questions with Verified
Answers – 100% Updated Comprehensive
Practice Exam – Graded A+
COMPETENCY 1: FINANCIAL ACCOUNTING FUNDAMENTALS (Questions
1-25)
Q1: The matching principle in accrual accounting requires that:
A. Revenues be recognized when the earnings process is complete and matches
expenses to revenues recognized
B. Expenses are matched to the year in which they are incurred
C. Revenues are matched to the year in which they are booked
D. Revenues should be large enough to match expenses
Correct Answer: A ✅
Rationale: The matching principle requires that revenues be recognized when earned
(earnings process complete) and that expenses be matched to those revenues in the
same period. This ensures accurate profit measurement. Option B describes cash basis
accounting, not accrual matching. Option C ignores the expense matching requirement.
Option D is not an accounting principle—revenue recognition is based on earning, not
sizing to match expenses.
(Competency: 1-Accounting | Difficulty: Easy)
,Q2: A basic equation for the balance sheet is:
A. Equity = Assets - Liabilities
B. Liabilities = Equity + Assets
C. Assets = Liabilities - Equity
D. Assets = Equity - Liabilities
Correct Answer: A ✅
Rationale: The fundamental accounting equation is Assets = Liabilities + Equity, which
can be algebraically rearranged to Equity = Assets - Liabilities. This shows that owners'
claim equals what the company owns minus what it owes. Options B, C, and D
incorrectly represent the mathematical relationship between these three elements and
would produce incorrect financial statements.
(Competency: 1-Accounting | Difficulty: Easy)
Q3: Why is the Balance Sheet known as a permanent statement?
A. Because the statement is sent to the SEC
B. Because the other statements are reset at the end of the fiscal year
C. Because it is printed out and archived
D. Because it persists in the minds of the shareholders
Correct Answer: B ✅
,Rationale: The balance sheet is considered "permanent" because its accounts (assets,
liabilities, equity) carry forward from year to year as beginning balances, unlike income
statement accounts (revenues, expenses) and cash flow categories which are reset to
zero at fiscal year-end. This permanence allows tracking of cumulative financial position
over time.
(Competency: 1-Accounting | Difficulty: Easy)
Q4: How do you calculate the change in Retained Earnings?
A. Ending Retained Earnings - Change in Cash
B. EBIT divided by Total Assets + Dividends
C. EBIT - Change in Cash - Dividends
D. Net Income - Dividends
Correct Answer: D ✅
Rationale: The change in retained earnings equals Net Income minus Dividends paid.
This represents the portion of current earnings kept in the business rather than
distributed to shareholders. Beginning retained earnings plus this change equals ending
retained earnings. Options A, B, and C incorrectly mix unrelated concepts (cash
changes, EBIT, asset turnover) into the retained earnings calculation.
(Competency: 1-Accounting | Difficulty: Easy)
Q5: Which of the following is generally true?
A. Gross Profit and Operating Income are the same
, B. Cost of Goods Sold + Operating Expenses = Net Income
C. Operating Income and EBIT are the same
D. EBIT + Income Taxes = Net income
Correct Answer: C ✅
Rationale: Operating Income and EBIT (Earnings Before Interest and Taxes) are identical
measures of profitability from core business operations. Gross Profit (A) is revenue
minus COGS, excluding operating expenses. COGS + Operating Expenses = Total
Expenses, not Net Income (B)—revenue must be included. Net Income = EBIT - Interest -
Taxes, so EBIT + Taxes (D) incorrectly adds rather than subtracts taxes.
(Competency: 1-Accounting | Difficulty: Medium)
Q6: Which components are part of total assets?
A. Cash, Accounts Receivable, Short Term Debt
B. Cash, Accounts Receivable, Inventory, Long Term Assets
C. Accounts Payable, Long Term Assets, Long Term Debt
D. Accounts Payable, Net Income, Equity
Correct Answer: B ✅
Rationale: Total assets include current assets (cash, accounts receivable, inventory)
plus long-term assets (property, plant, equipment, investments). Short-term debt (A) is a
liability. Accounts payable (C, D) are liabilities. Net income (D) flows to equity but is not
an asset. Understanding the asset/liability/equity distinction is fundamental to financial
statement analysis.
