CPA Financial Accounting & Reporting

Question 1

What is the primary purpose of financial accounting?

Accepted Answer

To prepare financial statements that inform external stakeholders.

Answer

To calculate income tax.

Answer

To create business strategies.

Answer

To manage daily operational expenses.

Question 2

What does the balance sheet show?

Accepted Answer

Assets, liabilities, and equity.

Answer

Cash flow.

Answer

Revenue and expenses.

Answer

Investment return.

Question 3

Which of the following is considered an asset?

Accepted Answer

Inventory.

Answer

Accounts payable.

Answer

Bank loan.

Answer

Shareholders' equity.

Question 4

What is depreciation?

Accepted Answer

The allocation of an asset's cost over time.

Answer

The total loss in value of an asset.

Answer

The decrease in inventory value.

Answer

The cost of maintenance for equipment.

Question 5

What is a liability?

Accepted Answer

An obligation that needs to be settled.

Answer

A company's equity.

Answer

An asset owned by the company.

Answer

Revenue earned by the company.

Question 6

What is the purpose of the income statement?

Accepted Answer

To show the financial performance of the company.

Answer

To provide a snapshot of a company's assets.

Answer

To calculate a company's taxable income.

Answer

To track future cash flow.

Question 7

What is an example of an operating expense?

Accepted Answer

Sales commissions.

Answer

Cost of goods sold.

Answer

Interest on loans.

Answer

Rent from leasing property.

Question 8

Which of the following is part of the shareholders' equity section?

Accepted Answer

Retained earnings.

Answer

Accounts payable.

Answer

Bank loans.

Answer

Inventory.

Question 9

What is accrual accounting?

Accepted Answer

Revenues and expenses are recognized when earned or incurred.

Answer

Revenue is recognized when payment is received.

Answer

Expenses are recognized when paid.

Answer

Revenues are recognized only when cash is received.