NAB Financial Management Section Practice Study Guide |
Latest Update 2026/2027 | 200 Practice Questions and Verified
Answers | Complete Q&A Guide | A+ Graded
SECTION 1: FINANCIAL STATEMENTS AND ACCOUNTING (Questions 1–40)
1. The financial statement that presents the organization's financial position at a specific point in time is
the:
A) Income statement
B) Statement of cash flows
C) Balance sheet
D) Statement of retained earnings
Answer: C – Balance sheet.
Rationale: The balance sheet provides a snapshot of the organization's assets, liabilities, and equity at a
specific point in time (e.g., December 31). The income statement covers a period of time.
2. The accounting equation is:
A) Assets = Liabilities + Equity
B) Assets = Liabilities – Equity
C) Revenue – Expenses = Profit
D) Cash In – Cash Out = Net Cash Flow
Answer: A – Assets = Liabilities + Equity.
Rationale: The fundamental accounting equation states that assets equal liabilities plus owners' equity.
3. The formula for net income is:
A) Assets – Liabilities
B) Revenues – Expenses
,C) Cash In – Cash Out
D) Gross Profit – Operating Expenses
Answer: B – Revenues – Expenses.
Rationale: Net income = Total Revenues – Total Expenses. This represents the profit or loss generated by
the facility over a specific period.
4. An administrator who instructs the accountant to begin reporting facility finances by recording all
expenditures and all receipts as they actually occur has decided to use the _____ system of accounting.
A) Cash
B) Simplified
C) Nofault
D) Accrual
Answer: A – Cash.
Rationale: The cash system of accounting records transactions when cash actually changes hands, not
when they are incurred.
5. It is difficult to recognize items such as depreciation and prepaid insurance in the _____ system of
accounting.
A) Accrual
B) Simplified
C) Cash
D) Income and expense
Answer: C – Cash.
Rationale: The cash basis of accounting does not easily accommodate noncash items like depreciation
and prepaid expenses, which require accrual accounting for proper recognition.
6. The term "bad debt" in a nursing home setting refers to:
,A) Money owed by vendors
B) Accounts receivable that are unlikely to be collected
C) Loans taken out by the facility
D) Depreciation of equipment
Answer: B – Accounts receivable that are unlikely to be collected.
Rationale: Bad debt is accounts receivable considered uncollectible, such as resident balances that
remain unpaid despite collection efforts.
7. Allowing the bookkeeper to destroy vouchers showing payments made for meals to employees once
these are recorded may violate the _____ concept.
A) Objective evidence
B) Consistency
C) Time period
D) Entity
Answer: A – Objective evidence.
Rationale: The objective evidence concept requires that all transactions be supported by verifiable
documentation. Destroying source documents violates this principle.
8. Pieces of paper indicating money owed to or by the facility, bank statements, and similar pieces of
paper or its electronic equivalent are known as:
A) Paper trail
B) Source documents
C) Bill of lading
D) Records
Answer: B – Source documents.
Rationale: Source documents are the original records that provide evidence of a transaction, such as
invoices, receipts, and bank statements.
, 9. Directing the accountant to move from a January 1 fiscal year date to a June 30 fiscal year date in
order to minimize the negative image possibly created by an anticipated loss violates the _____ concept.
A) Ongoing concern
B) Time period
C) Conservation
D) Entity
Answer: B – Time period.
Rationale: The time period concept requires that financial statements be prepared for specific,
consistent accounting periods. Changing the fiscal year to hide a loss violates this principle.
10. Assets that can be capitalized or depreciated differ from the other assets of a facility in that they are
used in operations for more than _____ and will not be converted into _____ within the year.
A) One time period
B) Two time periods
C) Three years
D) One year
Answer: A – One time period.
Rationale: Capital assets (fixed assets) are used in operations for more than one accounting period and
are not intended for sale within the year. They are depreciated over their useful lives.
11. At the end of a time period, total expenses are subtracted from total revenues to compute the:
A) Net income, or profit or loss
B) Approximate income
C) Adjusted income margin
D) Operating income
Answer: A – Net income, or profit or loss.
Latest Update 2026/2027 | 200 Practice Questions and Verified
Answers | Complete Q&A Guide | A+ Graded
SECTION 1: FINANCIAL STATEMENTS AND ACCOUNTING (Questions 1–40)
1. The financial statement that presents the organization's financial position at a specific point in time is
the:
A) Income statement
B) Statement of cash flows
C) Balance sheet
D) Statement of retained earnings
Answer: C – Balance sheet.
Rationale: The balance sheet provides a snapshot of the organization's assets, liabilities, and equity at a
specific point in time (e.g., December 31). The income statement covers a period of time.
2. The accounting equation is:
A) Assets = Liabilities + Equity
B) Assets = Liabilities – Equity
C) Revenue – Expenses = Profit
D) Cash In – Cash Out = Net Cash Flow
Answer: A – Assets = Liabilities + Equity.
Rationale: The fundamental accounting equation states that assets equal liabilities plus owners' equity.
3. The formula for net income is:
A) Assets – Liabilities
B) Revenues – Expenses
,C) Cash In – Cash Out
D) Gross Profit – Operating Expenses
Answer: B – Revenues – Expenses.
Rationale: Net income = Total Revenues – Total Expenses. This represents the profit or loss generated by
the facility over a specific period.
4. An administrator who instructs the accountant to begin reporting facility finances by recording all
expenditures and all receipts as they actually occur has decided to use the _____ system of accounting.
A) Cash
B) Simplified
C) Nofault
D) Accrual
Answer: A – Cash.
Rationale: The cash system of accounting records transactions when cash actually changes hands, not
when they are incurred.
5. It is difficult to recognize items such as depreciation and prepaid insurance in the _____ system of
accounting.
A) Accrual
B) Simplified
C) Cash
D) Income and expense
Answer: C – Cash.
Rationale: The cash basis of accounting does not easily accommodate noncash items like depreciation
and prepaid expenses, which require accrual accounting for proper recognition.
6. The term "bad debt" in a nursing home setting refers to:
,A) Money owed by vendors
B) Accounts receivable that are unlikely to be collected
C) Loans taken out by the facility
D) Depreciation of equipment
Answer: B – Accounts receivable that are unlikely to be collected.
Rationale: Bad debt is accounts receivable considered uncollectible, such as resident balances that
remain unpaid despite collection efforts.
7. Allowing the bookkeeper to destroy vouchers showing payments made for meals to employees once
these are recorded may violate the _____ concept.
A) Objective evidence
B) Consistency
C) Time period
D) Entity
Answer: A – Objective evidence.
Rationale: The objective evidence concept requires that all transactions be supported by verifiable
documentation. Destroying source documents violates this principle.
8. Pieces of paper indicating money owed to or by the facility, bank statements, and similar pieces of
paper or its electronic equivalent are known as:
A) Paper trail
B) Source documents
C) Bill of lading
D) Records
Answer: B – Source documents.
Rationale: Source documents are the original records that provide evidence of a transaction, such as
invoices, receipts, and bank statements.
, 9. Directing the accountant to move from a January 1 fiscal year date to a June 30 fiscal year date in
order to minimize the negative image possibly created by an anticipated loss violates the _____ concept.
A) Ongoing concern
B) Time period
C) Conservation
D) Entity
Answer: B – Time period.
Rationale: The time period concept requires that financial statements be prepared for specific,
consistent accounting periods. Changing the fiscal year to hide a loss violates this principle.
10. Assets that can be capitalized or depreciated differ from the other assets of a facility in that they are
used in operations for more than _____ and will not be converted into _____ within the year.
A) One time period
B) Two time periods
C) Three years
D) One year
Answer: A – One time period.
Rationale: Capital assets (fixed assets) are used in operations for more than one accounting period and
are not intended for sale within the year. They are depreciated over their useful lives.
11. At the end of a time period, total expenses are subtracted from total revenues to compute the:
A) Net income, or profit or loss
B) Approximate income
C) Adjusted income margin
D) Operating income
Answer: A – Net income, or profit or loss.
