California CPA EXAM QUESTIONS AND
CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES
2025/2026 Q&A | INSTANT DOWNLOAD
PDF
Question 1
Which financial statement shows a company’s financial position at a specific point
in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Correct Answer: C. Balance sheet
Rationale:
The balance sheet reports assets, liabilities, and equity at a specific date.
Question 2
Which accounting principle requires expenses to be matched with revenues?
A. Cost principle
B. Matching principle
C. Full disclosure principle
D. Revenue recognition principle
Correct Answer: B. Matching principle
,Rationale:
Expenses should be recorded in the same period as the revenues they help
generate.
Question 3
Which account is increased with a credit?
A. Assets
B. Expenses
C. Liabilities
D. Dividends
Correct Answer: C. Liabilities
Rationale:
Liabilities normally have a credit balance and increase with credits.
Question 4
What is the normal balance of the Cash account?
A. Credit
B. Debit
C. Zero
D. Either debit or credit
Correct Answer: B. Debit
Rationale:
Cash is an asset and increases with debits.
Question 5
Which financial statement reports profitability over a period?
A. Balance sheet
B. Income statement
,C. Statement of financial position
D. Trial balance
Correct Answer: B. Income statement
Rationale:
The income statement shows revenues and expenses over time.
Question 6
What is depreciation?
A. Increase in asset value
B. Allocation of asset cost over time
C. Cash expense
D. Increase in liabilities
Correct Answer: B. Allocation of asset cost over time
Rationale:
Depreciation spreads the cost of a fixed asset over its useful life.
Question 7
Which accounting method recognizes revenue when earned?
A. Cash basis
B. Accrual basis
C. Tax basis
D. Modified cash basis
Correct Answer: B. Accrual basis
Rationale:
Revenue is recognized when earned, not when cash is received.
Question 8
, What is the purpose of a trial balance?
A. Calculate profit
B. Ensure debits equal credits
C. Record cash flow
D. Determine taxes owed
Correct Answer: B. Ensure debits equal credits
Rationale:
A trial balance checks the mathematical accuracy of bookkeeping.
Question 9
Which statement shows cash inflows and outflows?
A. Income statement
B. Balance sheet
C. Statement of cash flows
D. Statement of equity
Correct Answer: C. Statement of cash flows
Rationale:
It reports operating, investing, and financing cash activities.
Question 10
Which type of account is Accounts Receivable?
A. Liability
B. Expense
C. Asset
D. Revenue
Correct Answer: C. Asset
Rationale:
Accounts receivable represents money owed to the company.
CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES
2025/2026 Q&A | INSTANT DOWNLOAD
Question 1
Which financial statement shows a company’s financial position at a specific point
in time?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Correct Answer: C. Balance sheet
Rationale:
The balance sheet reports assets, liabilities, and equity at a specific date.
Question 2
Which accounting principle requires expenses to be matched with revenues?
A. Cost principle
B. Matching principle
C. Full disclosure principle
D. Revenue recognition principle
Correct Answer: B. Matching principle
,Rationale:
Expenses should be recorded in the same period as the revenues they help
generate.
Question 3
Which account is increased with a credit?
A. Assets
B. Expenses
C. Liabilities
D. Dividends
Correct Answer: C. Liabilities
Rationale:
Liabilities normally have a credit balance and increase with credits.
Question 4
What is the normal balance of the Cash account?
A. Credit
B. Debit
C. Zero
D. Either debit or credit
Correct Answer: B. Debit
Rationale:
Cash is an asset and increases with debits.
Question 5
Which financial statement reports profitability over a period?
A. Balance sheet
B. Income statement
,C. Statement of financial position
D. Trial balance
Correct Answer: B. Income statement
Rationale:
The income statement shows revenues and expenses over time.
Question 6
What is depreciation?
A. Increase in asset value
B. Allocation of asset cost over time
C. Cash expense
D. Increase in liabilities
Correct Answer: B. Allocation of asset cost over time
Rationale:
Depreciation spreads the cost of a fixed asset over its useful life.
Question 7
Which accounting method recognizes revenue when earned?
A. Cash basis
B. Accrual basis
C. Tax basis
D. Modified cash basis
Correct Answer: B. Accrual basis
Rationale:
Revenue is recognized when earned, not when cash is received.
Question 8
, What is the purpose of a trial balance?
A. Calculate profit
B. Ensure debits equal credits
C. Record cash flow
D. Determine taxes owed
Correct Answer: B. Ensure debits equal credits
Rationale:
A trial balance checks the mathematical accuracy of bookkeeping.
Question 9
Which statement shows cash inflows and outflows?
A. Income statement
B. Balance sheet
C. Statement of cash flows
D. Statement of equity
Correct Answer: C. Statement of cash flows
Rationale:
It reports operating, investing, and financing cash activities.
Question 10
Which type of account is Accounts Receivable?
A. Liability
B. Expense
C. Asset
D. Revenue
Correct Answer: C. Asset
Rationale:
Accounts receivable represents money owed to the company.
