WGU D102: FINANCIAL ACCOUNTING EXAM READY - VERIFIED QUESTIONS
AND ANSWERS - COMPREHENSIVE LATEST VERSION 2026/2027
Q1. What is financial accounting?
Answer: Financial accounting is the process of recording, summarizing, and
reporting a company's financial transactions to external users such as investors,
creditors, and regulators.
Q2. What is the primary purpose of financial statements?
Answer: To provide useful financial information to external stakeholders for
making economic decisions about investments, lending, and other resource
allocation.
Q3. What are the four main financial statements?
Answer: Income Statement, Balance Sheet (Statement of Financial Position),
Statement of Cash Flows, and Statement of Stockholders' Equity.
Q4. What is the accounting equation?
Answer: Assets = Liabilities + Stockholders' Equity. This equation must always
remain in balance.
Q5. Define 'assets' in accounting.
Answer: Assets are resources owned or controlled by a company that are
expected to provide future economic benefits, such as cash, inventory,
equipment, and accounts receivable.
Q6. Define 'liabilities' in accounting.
Answer: Liabilities are obligations a company owes to external parties, including
accounts payable, notes payable, accrued expenses, and long-term debt.
Q7. Define 'stockholders' equity'.
Answer: Stockholders' equity represents the owners' residual interest in the
company's assets after deducting liabilities. It includes common stock, additional
paid-in capital, and retained earnings.
Q8. What is the going concern assumption?
,Answer: The assumption that a business will continue operating indefinitely into
the foreseeable future and does not intend to liquidate or significantly curtail
operations.
Q9. What is the monetary unit assumption?
Answer: The assumption that only transactions and events that can be
measured in monetary terms are recorded in the financial statements.
Q10. What is the time period assumption?
Answer: The assumption that the life of a business can be divided into artificial
time periods (monthly, quarterly, annually) for reporting purposes.
Q11. What is the economic entity assumption?
Answer: The assumption that the activities of a business are kept separate and
distinct from the activities of its owners and other businesses.
Q12. What is GAAP?
Answer: Generally Accepted Accounting Principles — the standard framework of
guidelines for financial accounting used in the United States, developed primarily
by the FASB.
Q13. What is the FASB?
Answer: The Financial Accounting Standards Board — the private-sector body
that establishes financial accounting and reporting standards (GAAP) in the
United States.
Q14. What is the SEC's role in accounting?
Answer: The Securities and Exchange Commission oversees financial reporting
by publicly traded companies and has delegated the authority to set accounting
standards to the FASB.
Q15. What is IFRS?
Answer: International Financial Reporting Standards — accounting standards
issued by the International Accounting Standards Board (IASB), used in many
countries outside the United States.
Q16. What is the accrual basis of accounting?
Answer: Revenue is recognized when earned and expenses when incurred,
regardless of when cash is received or paid.
Q17. What is the cash basis of accounting?
Answer: Revenue is recognized when cash is received and expenses when
cash is paid. Not GAAP-compliant for most businesses.
Q18. What is the revenue recognition principle?
,Answer: Revenue should be recognized when it is earned and realizable,
regardless of when cash is received — i.e., when the performance obligation is
satisfied.
Q19. What is the matching principle?
Answer: Expenses should be recognized in the same period as the revenues
they helped generate.
Q20. What is the full disclosure principle?
Answer: Companies must disclose all information that would make a difference
to financial statement users, either in the statements or in the accompanying
notes.
Q21. What is the cost principle (historical cost)?
Answer: Assets should be recorded at their original purchase price (historical
cost), not their current market value.
Q22. What is materiality in accounting?
Answer: An item is material if its omission or misstatement could influence the
economic decisions of users. Immaterial items may not require strict GAAP
compliance.
Q23. What is conservatism in accounting?
Answer: When in doubt, accountants choose the option that is least likely to
overstate assets and income — recognizing losses sooner and gains later.
Q24. What is the difference between a public and a private company in
terms of reporting?
Answer: Public companies must file financial statements with the SEC and
follow strict GAAP; private companies have more flexibility and fewer disclosure
requirements.
Q25. What is double-entry bookkeeping?
Answer: A system where every transaction is recorded with at least one debit
and one credit, keeping the accounting equation in balance.
Q26. What is a debit?
Answer: A debit is an entry on the left side of an account. Debits increase assets
and expenses; debits decrease liabilities, equity, and revenues.
Q27. What is a credit?
Answer: A credit is an entry on the right side of an account. Credits increase
liabilities, equity, and revenues; credits decrease assets and expenses.
Q28. What is a T-account?
, Answer: A visual representation of a ledger account shaped like the letter T, with
debits on the left and credits on the right.
Q29. What is the normal balance of an asset account?
Answer: Debit (assets are increased by debits and decreased by credits).
Q30. What is the normal balance of a liability account?
Answer: Credit (liabilities are increased by credits and decreased by debits).
Q31. What is a journal entry?
Answer: A record of a financial transaction in the general journal, showing the
date, accounts debited and credited, amounts, and a brief description.
Q32. What is the general ledger?
Answer: The master record of all accounts used by a company, containing all
posted journal entries organized by account.
Q33. What is posting in accounting?
Answer: The process of transferring debit and credit amounts from the general
journal to the individual accounts in the general ledger.
Q34. What is a trial balance?
Answer: A list of all ledger accounts and their balances at a specific date, used
to verify that total debits equal total credits.
Q35. What is an adjusted trial balance?
Answer: A trial balance prepared after all adjusting entries have been recorded,
used as the basis for preparing financial statements.
Q36. What is a chart of accounts?
Answer: A listing of all accounts used by a company, organized by category
(assets, liabilities, equity, revenues, expenses), each assigned a unique number.
Q37. What are temporary accounts?
Answer: Revenue, expense, and dividend accounts that are closed at the end of
each accounting period. Their balances are transferred to retained earnings.
Q38. What are permanent accounts?
Answer: Balance sheet accounts (assets, liabilities, and equity) whose balances
carry forward from one period to the next.
Q39. What is the closing process?
Answer: The end-of-period process of transferring balances from temporary
accounts (revenues, expenses, dividends) to retained earnings and resetting
temporary accounts to zero.
AND ANSWERS - COMPREHENSIVE LATEST VERSION 2026/2027
Q1. What is financial accounting?
Answer: Financial accounting is the process of recording, summarizing, and
reporting a company's financial transactions to external users such as investors,
creditors, and regulators.
Q2. What is the primary purpose of financial statements?
Answer: To provide useful financial information to external stakeholders for
making economic decisions about investments, lending, and other resource
allocation.
Q3. What are the four main financial statements?
Answer: Income Statement, Balance Sheet (Statement of Financial Position),
Statement of Cash Flows, and Statement of Stockholders' Equity.
Q4. What is the accounting equation?
Answer: Assets = Liabilities + Stockholders' Equity. This equation must always
remain in balance.
Q5. Define 'assets' in accounting.
Answer: Assets are resources owned or controlled by a company that are
expected to provide future economic benefits, such as cash, inventory,
equipment, and accounts receivable.
Q6. Define 'liabilities' in accounting.
Answer: Liabilities are obligations a company owes to external parties, including
accounts payable, notes payable, accrued expenses, and long-term debt.
Q7. Define 'stockholders' equity'.
Answer: Stockholders' equity represents the owners' residual interest in the
company's assets after deducting liabilities. It includes common stock, additional
paid-in capital, and retained earnings.
Q8. What is the going concern assumption?
,Answer: The assumption that a business will continue operating indefinitely into
the foreseeable future and does not intend to liquidate or significantly curtail
operations.
Q9. What is the monetary unit assumption?
Answer: The assumption that only transactions and events that can be
measured in monetary terms are recorded in the financial statements.
Q10. What is the time period assumption?
Answer: The assumption that the life of a business can be divided into artificial
time periods (monthly, quarterly, annually) for reporting purposes.
Q11. What is the economic entity assumption?
Answer: The assumption that the activities of a business are kept separate and
distinct from the activities of its owners and other businesses.
Q12. What is GAAP?
Answer: Generally Accepted Accounting Principles — the standard framework of
guidelines for financial accounting used in the United States, developed primarily
by the FASB.
Q13. What is the FASB?
Answer: The Financial Accounting Standards Board — the private-sector body
that establishes financial accounting and reporting standards (GAAP) in the
United States.
Q14. What is the SEC's role in accounting?
Answer: The Securities and Exchange Commission oversees financial reporting
by publicly traded companies and has delegated the authority to set accounting
standards to the FASB.
Q15. What is IFRS?
Answer: International Financial Reporting Standards — accounting standards
issued by the International Accounting Standards Board (IASB), used in many
countries outside the United States.
Q16. What is the accrual basis of accounting?
Answer: Revenue is recognized when earned and expenses when incurred,
regardless of when cash is received or paid.
Q17. What is the cash basis of accounting?
Answer: Revenue is recognized when cash is received and expenses when
cash is paid. Not GAAP-compliant for most businesses.
Q18. What is the revenue recognition principle?
,Answer: Revenue should be recognized when it is earned and realizable,
regardless of when cash is received — i.e., when the performance obligation is
satisfied.
Q19. What is the matching principle?
Answer: Expenses should be recognized in the same period as the revenues
they helped generate.
Q20. What is the full disclosure principle?
Answer: Companies must disclose all information that would make a difference
to financial statement users, either in the statements or in the accompanying
notes.
Q21. What is the cost principle (historical cost)?
Answer: Assets should be recorded at their original purchase price (historical
cost), not their current market value.
Q22. What is materiality in accounting?
Answer: An item is material if its omission or misstatement could influence the
economic decisions of users. Immaterial items may not require strict GAAP
compliance.
Q23. What is conservatism in accounting?
Answer: When in doubt, accountants choose the option that is least likely to
overstate assets and income — recognizing losses sooner and gains later.
Q24. What is the difference between a public and a private company in
terms of reporting?
Answer: Public companies must file financial statements with the SEC and
follow strict GAAP; private companies have more flexibility and fewer disclosure
requirements.
Q25. What is double-entry bookkeeping?
Answer: A system where every transaction is recorded with at least one debit
and one credit, keeping the accounting equation in balance.
Q26. What is a debit?
Answer: A debit is an entry on the left side of an account. Debits increase assets
and expenses; debits decrease liabilities, equity, and revenues.
Q27. What is a credit?
Answer: A credit is an entry on the right side of an account. Credits increase
liabilities, equity, and revenues; credits decrease assets and expenses.
Q28. What is a T-account?
, Answer: A visual representation of a ledger account shaped like the letter T, with
debits on the left and credits on the right.
Q29. What is the normal balance of an asset account?
Answer: Debit (assets are increased by debits and decreased by credits).
Q30. What is the normal balance of a liability account?
Answer: Credit (liabilities are increased by credits and decreased by debits).
Q31. What is a journal entry?
Answer: A record of a financial transaction in the general journal, showing the
date, accounts debited and credited, amounts, and a brief description.
Q32. What is the general ledger?
Answer: The master record of all accounts used by a company, containing all
posted journal entries organized by account.
Q33. What is posting in accounting?
Answer: The process of transferring debit and credit amounts from the general
journal to the individual accounts in the general ledger.
Q34. What is a trial balance?
Answer: A list of all ledger accounts and their balances at a specific date, used
to verify that total debits equal total credits.
Q35. What is an adjusted trial balance?
Answer: A trial balance prepared after all adjusting entries have been recorded,
used as the basis for preparing financial statements.
Q36. What is a chart of accounts?
Answer: A listing of all accounts used by a company, organized by category
(assets, liabilities, equity, revenues, expenses), each assigned a unique number.
Q37. What are temporary accounts?
Answer: Revenue, expense, and dividend accounts that are closed at the end of
each accounting period. Their balances are transferred to retained earnings.
Q38. What are permanent accounts?
Answer: Balance sheet accounts (assets, liabilities, and equity) whose balances
carry forward from one period to the next.
Q39. What is the closing process?
Answer: The end-of-period process of transferring balances from temporary
accounts (revenues, expenses, dividends) to retained earnings and resetting
temporary accounts to zero.
