WGU C213 Accounting for Decision Makers
Comprehensive Practice Exam 2026/2027:
Actual Questions with Verified Answers – Latest
Updates – Graded A+
Section: Financial Accounting Foundations
Q1: Which of the following is the correct accounting equation?
A. Assets = Liabilities + Equity
B. Assets = Liabilities - Equity
C. Assets = Liabilities + Equity. [CORRECT]
D. Assets = Revenue - Expenses
Correct Answer: C
Rationale: The fundamental accounting equation states that Assets equal Liabilities
plus Equity, representing the balance sheet structure where resources are financed by
creditors and owners. Option A is incorrect because it reverses the standard
presentation order but is mathematically equivalent; however, the traditional form
places equity on the right side to show the residual claim.
Q2: A company purchases $5,000 of inventory on credit. What is the immediate effect
on the accounting equation?
A. Assets increase $5,000; Liabilities decrease $5,000
B. Assets increase $5,000; Equity increases $5,000
C. Assets increase $5,000; Liabilities increase $5,000. [CORRECT]
D. No effect on the accounting equation
Correct Answer: C
Rationale: Purchasing inventory on credit increases the asset account Inventory by
$5,000 and increases the liability account Accounts Payable by $5,000, maintaining the
,balance of the accounting equation. Option A is incorrect because it suggests liabilities
decrease when credit purchases actually create obligations to pay.
Q3: Which principle requires that expenses be matched with the revenues they help
generate in the same accounting period?
A. Revenue Recognition Principle
B. Historical Cost Principle
C. Matching Principle. [CORRECT]
D. Consistency Principle
Correct Answer: C
Rationale: The Matching Principle (or Expense Recognition Principle) dictates that
expenses must be recorded in the same period as the revenues they contribute to
generating, ensuring accurate net income measurement. Option A is incorrect because
the Revenue Recognition Principle governs when revenue is recorded, not the pairing of
expenses with that revenue.
Q4: Under accrual basis accounting, revenue is recognized when:
A. Cash is received from customers
B. The company has a legal right to payment and the earnings process is substantially
complete. [CORRECT]
C. The invoice is mailed to the customer
D. The contract is signed
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when it is earned (performance
obligation satisfied) and realizable (payment is collectible), regardless of cash receipt
timing. Option A describes cash basis accounting, which violates the revenue
recognition principle and creates distorted financial results when cash flows lag
performance.
Q5: A company pays $12,000 for a 12-month insurance policy on July 1. What adjusting
entry is required on December 31?
A. Debit Insurance Expense $12,000; Credit Cash $12,000
B. Debit Prepaid Insurance $6,000; Credit Insurance Expense $6,000
C. Debit Insurance Expense $6,000; Credit Prepaid Insurance $6,000. [CORRECT]
D. No adjusting entry needed
, Correct Answer: C
Rationale: After 6 months, $6,000 of insurance has expired (12,000 × 6/12) and must be
recognized as expense, reducing the prepaid asset. Option A is incorrect because it
records the entire amount as immediate expense, violating the matching principle by
not spreading the cost over the benefit period.
Q6: 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. [CORRECT]
D. Statement of Retained Earnings
Correct Answer: C
Rationale: The Balance Sheet (Statement of Financial Position) presents assets,
liabilities, and equity as of a specific date, showing what the company owns and owes.
Option A is incorrect because the Income Statement covers a period of time (revenues
minus expenses), not a single moment.
Q7: Unearned Revenue is classified as:
A. An asset
B. A liability. [CORRECT]
C. Revenue
D. Equity
Correct Answer: B
Rationale: Unearned Revenue represents cash received before services are performed,
creating an obligation to deliver goods or services in the future, which meets the
definition of a liability. Option C is incorrect because revenue cannot be recognized until
the performance obligation is satisfied under the revenue recognition principle.
Q8: Which of the following transactions would decrease working capital?
A. Collecting accounts receivable
B. Paying accounts payable with cash
C. Purchasing equipment with cash. [CORRECT]
D. Incurring utilities expense on account
Correct Answer: C
Comprehensive Practice Exam 2026/2027:
Actual Questions with Verified Answers – Latest
Updates – Graded A+
Section: Financial Accounting Foundations
Q1: Which of the following is the correct accounting equation?
A. Assets = Liabilities + Equity
B. Assets = Liabilities - Equity
C. Assets = Liabilities + Equity. [CORRECT]
D. Assets = Revenue - Expenses
Correct Answer: C
Rationale: The fundamental accounting equation states that Assets equal Liabilities
plus Equity, representing the balance sheet structure where resources are financed by
creditors and owners. Option A is incorrect because it reverses the standard
presentation order but is mathematically equivalent; however, the traditional form
places equity on the right side to show the residual claim.
Q2: A company purchases $5,000 of inventory on credit. What is the immediate effect
on the accounting equation?
A. Assets increase $5,000; Liabilities decrease $5,000
B. Assets increase $5,000; Equity increases $5,000
C. Assets increase $5,000; Liabilities increase $5,000. [CORRECT]
D. No effect on the accounting equation
Correct Answer: C
Rationale: Purchasing inventory on credit increases the asset account Inventory by
$5,000 and increases the liability account Accounts Payable by $5,000, maintaining the
,balance of the accounting equation. Option A is incorrect because it suggests liabilities
decrease when credit purchases actually create obligations to pay.
Q3: Which principle requires that expenses be matched with the revenues they help
generate in the same accounting period?
A. Revenue Recognition Principle
B. Historical Cost Principle
C. Matching Principle. [CORRECT]
D. Consistency Principle
Correct Answer: C
Rationale: The Matching Principle (or Expense Recognition Principle) dictates that
expenses must be recorded in the same period as the revenues they contribute to
generating, ensuring accurate net income measurement. Option A is incorrect because
the Revenue Recognition Principle governs when revenue is recorded, not the pairing of
expenses with that revenue.
Q4: Under accrual basis accounting, revenue is recognized when:
A. Cash is received from customers
B. The company has a legal right to payment and the earnings process is substantially
complete. [CORRECT]
C. The invoice is mailed to the customer
D. The contract is signed
Correct Answer: B
Rationale: Accrual accounting recognizes revenue when it is earned (performance
obligation satisfied) and realizable (payment is collectible), regardless of cash receipt
timing. Option A describes cash basis accounting, which violates the revenue
recognition principle and creates distorted financial results when cash flows lag
performance.
Q5: A company pays $12,000 for a 12-month insurance policy on July 1. What adjusting
entry is required on December 31?
A. Debit Insurance Expense $12,000; Credit Cash $12,000
B. Debit Prepaid Insurance $6,000; Credit Insurance Expense $6,000
C. Debit Insurance Expense $6,000; Credit Prepaid Insurance $6,000. [CORRECT]
D. No adjusting entry needed
, Correct Answer: C
Rationale: After 6 months, $6,000 of insurance has expired (12,000 × 6/12) and must be
recognized as expense, reducing the prepaid asset. Option A is incorrect because it
records the entire amount as immediate expense, violating the matching principle by
not spreading the cost over the benefit period.
Q6: 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. [CORRECT]
D. Statement of Retained Earnings
Correct Answer: C
Rationale: The Balance Sheet (Statement of Financial Position) presents assets,
liabilities, and equity as of a specific date, showing what the company owns and owes.
Option A is incorrect because the Income Statement covers a period of time (revenues
minus expenses), not a single moment.
Q7: Unearned Revenue is classified as:
A. An asset
B. A liability. [CORRECT]
C. Revenue
D. Equity
Correct Answer: B
Rationale: Unearned Revenue represents cash received before services are performed,
creating an obligation to deliver goods or services in the future, which meets the
definition of a liability. Option C is incorrect because revenue cannot be recognized until
the performance obligation is satisfied under the revenue recognition principle.
Q8: Which of the following transactions would decrease working capital?
A. Collecting accounts receivable
B. Paying accounts payable with cash
C. Purchasing equipment with cash. [CORRECT]
D. Incurring utilities expense on account
Correct Answer: C
