Financial Statement Preparation Flashcards
7 cards from real CPB / BookKeeping practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Statement Preparation flashcards as text
Which principle requires that expenses be recorded in the same period as the revenues they help generate?
Answer: Matching principle
The matching principle requires expenses to be recognized in the same accounting period as the revenues they helped produce.
A company with $80,000 in current assets and $50,000 in current liabilities has working capital of:
Answer: $30,000
Working capital equals current assets minus current liabilities: $80,000 − $50,000 = $30,000.
Which of the following would cause a timing difference between book income and taxable income?
Answer: Using straight-line depreciation for books and MACRS for taxes
Using different depreciation methods for financial reporting versus tax purposes creates temporary differences that lead to deferred tax assets or liabilities.
Which type of audit opinion indicates that financial statements are presented fairly in all material respects?
Answer: Unmodified (clean) opinion
An unmodified (clean) opinion is issued when the auditor concludes the financial statements are presented fairly in all material respects under the applicable framework.
On the statement of cash flows, proceeds from issuing long-term bonds are reported under:
Answer: Financing activities
Proceeds from issuing long-term debt are classified as financing activities because they relate to raising capital from creditors.
If a company uses the allowance method for bad debts, what entry is made when a specific account is written off?
Answer: Debit allowance for doubtful accounts; credit accounts receivable
Under the allowance method, writing off a specific account debits the allowance (previously established) and credits accounts receivable, with no impact on net income.
Which of the following transactions increases total assets and total liabilities equally?
Answer: Purchasing inventory on credit
Purchasing inventory on credit increases inventory (asset) and accounts payable (liability) by equal amounts, keeping the accounting equation balanced.