Practice Test GeeksAIFA - Applied Investment & Finance Analyst Practice Test
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Financial Statement Analysis & Accounting Flashcards

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  1. Which financial statement provides a snapshot of a company's assets, liabilities, and equity at a specific point in time?

    Answer: Balance Sheet

    The Balance Sheet (also called Statement of Financial Position) reports a company's financial position at a single date, organized by assets, liabilities, and shareholders' equity.

  2. Under GAAP, when a company sells goods on credit, revenue should generally be recognized when:

    Answer: Control of the goods has transferred to the buyer

    Under ASC 606 (GAAP revenue recognition standard), revenue is recognized when control of the promised goods or services transfers to the customer, regardless of when cash is received.

  3. A company reports net income of $500,000, depreciation of $80,000, and an increase in accounts receivable of $30,000. What is the operating cash flow using the indirect method?

    Answer: $550,000

    Operating cash flow = Net income + Depreciation (non-cash) – Increase in AR = $500,000 + $80,000 – $30,000 = $550,000.

  4. Which depreciation method results in the highest depreciation expense in the early years of an asset's life?

    Answer: Double-declining balance depreciation

    Double-declining balance is an accelerated depreciation method that applies double the straight-line rate to the declining book value, producing the largest expense in the earliest years.

  5. The current ratio is calculated as:

    Answer: Current Assets / Current Liabilities

    The current ratio equals current assets divided by current liabilities, measuring a company's short-term liquidity and ability to pay near-term obligations.

  6. Working capital is defined as:

    Answer: Current assets minus current liabilities

    Working capital = Current Assets – Current Liabilities, representing the net short-term resources available to fund day-to-day operations.

  7. Which line item on the income statement represents revenue minus cost of goods sold?

    Answer: Gross profit

    Gross profit = Revenue – Cost of Goods Sold (COGS), representing profit before operating expenses, interest, and taxes are deducted.