CFM Financial Statements & Reporting 1

Question 1

Which financial statement shows a company's revenues and expenses over a specific period?

Accepted Answer

Income Statement

Answer

The income statement, also called the profit and loss statement, reports revenues, expenses, and net income over a reporting period.

Question 2

Under US GAAP, which inventory costing method assumes the most recently purchased items are sold first?

Accepted Answer

LIFO

Answer

LIFO (Last-In, First-Out) assumes the most recently purchased inventory is sold first, which is permitted under US GAAP but not IFRS.

Question 3

What is the accounting equation that forms the foundation of the balance sheet?

Accepted Answer

Assets = Liabilities + Equity

Answer

The fundamental accounting equation states that Assets equal Liabilities plus Shareholders' Equity, ensuring the balance sheet always balances.

Question 4

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

Accepted Answer

Double declining balance

Answer

Double declining balance is an accelerated depreciation method that front-loads depreciation expense, resulting in higher charges in early years.

Question 5

What does the term 'accrual basis accounting' mean?

Accepted Answer

Revenue is recorded when earned and expenses when incurred, regardless of cash flow

Answer

Accrual basis accounting records revenues when earned and expenses when incurred, regardless of when cash actually changes hands.

CFM - Certified Finance Manager Practice Test