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UNIFORM CERTIFIED PUBLIC ACCOUNTANT (CPA) EXAM 2026 – 2027
LATEST VERSION QUESTIONS AND ANSWERS 2026 EDITION
Uniform CPA Exam: 250 Practice Questions with Rationales
DOMAIN 1: FINANCIAL ACCOUNTING AND REPORTING (FAR) (50 Questions)
1. Which financial statement reports 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
Answer: C) Balance Sheet
Rationale: The balance sheet reports assets, liabilities, and equity at a specific point in
time. The income statement, cash flow statement, and statement of retained earnings
cover a period of time .
2. Under the accrual basis of accounting, when should revenue be recognized?
A) When cash is received from the customer
B) When the sale is made and revenue is earned
C) When expenses are paid
D) When inventory is purchased
Answer: B) When the sale is made and revenue is earned
Rationale: Accrual accounting recognizes revenue when it is earned, not when cash is
received. This aligns with the revenue recognition principle .
3. Which account is increased with a debit entry?
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A) Revenue
B) Liability
C) Expense
D) Equity
Answer: C) Expense
Rationale: Expenses are increased with debits. Revenues, liabilities, and equity are
increased with credits. Assets and expenses have normal debit balances .
4. What is the normal balance of accounts payable?
A) Debit
B) Credit
C) Zero
D) Either debit or credit
Answer: B) Credit
Rationale: Accounts payable is a liability account, and liabilities have a normal credit
balance .
5. Depreciation is the systematic allocation of an asset's cost over:
A) Its purchase period
B) Its useful life
C) One accounting cycle
D) Its salvage value
Answer: B) Its useful life
Rationale: Depreciation allocates the cost of a fixed asset over its useful life to match
the expense with the revenue generated by the asset .
6. Which financial statement shows cash inflows and outflows?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Retained Earnings
Answer: C) Statement of Cash Flows
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Rationale: The statement of cash flows tracks cash movements from operating,
investing, and financing activities .
7. What type of account is Accumulated Depreciation?
A) Asset account
B) Contra asset account
C) Liability account
D) Expense account
Answer: B) Contra asset account
Rationale: Accumulated depreciation is a contra asset account that offsets the related
asset account to show net book value .
8. Which of the following is a limitation of the balance sheet?
A) It reflects the company's liquidity
B) Many assets are reported at historical cost, which may not reflect current market
value
C) It provides insight into solvency
D) It allows comparison with other companies
Answer: B) Many assets are reported at historical cost, which may not reflect
current market value
Rationale: A key limitation of the balance sheet is that it reports assets at historical cost,
which may not reflect current market values .
9. What is the primary objective of financial accounting?
A) To provide information for internal management decision-making
B) To ensure compliance with tax regulations
C) To provide useful information to external users for decision-making
D) To prepare budgets for future operations
Answer: C) To provide useful information to external users for decision-making
Rationale: The primary goal of financial accounting is to provide external users such as
investors and creditors with useful financial information. Internal management
decisions are the focus of managerial accounting .
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10. Which of the following is NOT a qualitative characteristic of GAAP?
A) Relevance
B) Faithful Representation
C) Comparability
D) Profitability
Answer: D) Profitability
Rationale: The qualitative characteristics of GAAP include relevance, faithful
representation, comparability, verifiability, timeliness, and understandability.
Profitability is a performance outcome, not a qualitative characteristic .
11. Which of the following cash flow method reports major classes of gross cash
receipts and payments?
A) Indirect method
B) Hybrid method
C) Direct method
D) Accrual method
Answer: C) Direct method
Rationale: The direct method presents actual cash inflows and outflows from operating
activities, while the indirect method starts with net income and adjusts for non-cash
items .
12. Which cost is NOT a product cost?
A) Direct materials
B) Direct labor
C) Manufacturing overhead
D) Selling expense
Answer: D) Selling expense
Rationale: Selling expenses are period costs, not product costs. Product costs include
direct materials, direct labor, and manufacturing overhead .
13. What is the primary focus of managerial accounting?
A) External reporting
B) Tax compliance
UNIFORM CERTIFIED PUBLIC ACCOUNTANT (CPA) EXAM 2026 – 2027
LATEST VERSION QUESTIONS AND ANSWERS 2026 EDITION
Uniform CPA Exam: 250 Practice Questions with Rationales
DOMAIN 1: FINANCIAL ACCOUNTING AND REPORTING (FAR) (50 Questions)
1. Which financial statement reports 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
Answer: C) Balance Sheet
Rationale: The balance sheet reports assets, liabilities, and equity at a specific point in
time. The income statement, cash flow statement, and statement of retained earnings
cover a period of time .
2. Under the accrual basis of accounting, when should revenue be recognized?
A) When cash is received from the customer
B) When the sale is made and revenue is earned
C) When expenses are paid
D) When inventory is purchased
Answer: B) When the sale is made and revenue is earned
Rationale: Accrual accounting recognizes revenue when it is earned, not when cash is
received. This aligns with the revenue recognition principle .
3. Which account is increased with a debit entry?
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A) Revenue
B) Liability
C) Expense
D) Equity
Answer: C) Expense
Rationale: Expenses are increased with debits. Revenues, liabilities, and equity are
increased with credits. Assets and expenses have normal debit balances .
4. What is the normal balance of accounts payable?
A) Debit
B) Credit
C) Zero
D) Either debit or credit
Answer: B) Credit
Rationale: Accounts payable is a liability account, and liabilities have a normal credit
balance .
5. Depreciation is the systematic allocation of an asset's cost over:
A) Its purchase period
B) Its useful life
C) One accounting cycle
D) Its salvage value
Answer: B) Its useful life
Rationale: Depreciation allocates the cost of a fixed asset over its useful life to match
the expense with the revenue generated by the asset .
6. Which financial statement shows cash inflows and outflows?
A) Income Statement
B) Balance Sheet
C) Statement of Cash Flows
D) Statement of Retained Earnings
Answer: C) Statement of Cash Flows
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Rationale: The statement of cash flows tracks cash movements from operating,
investing, and financing activities .
7. What type of account is Accumulated Depreciation?
A) Asset account
B) Contra asset account
C) Liability account
D) Expense account
Answer: B) Contra asset account
Rationale: Accumulated depreciation is a contra asset account that offsets the related
asset account to show net book value .
8. Which of the following is a limitation of the balance sheet?
A) It reflects the company's liquidity
B) Many assets are reported at historical cost, which may not reflect current market
value
C) It provides insight into solvency
D) It allows comparison with other companies
Answer: B) Many assets are reported at historical cost, which may not reflect
current market value
Rationale: A key limitation of the balance sheet is that it reports assets at historical cost,
which may not reflect current market values .
9. What is the primary objective of financial accounting?
A) To provide information for internal management decision-making
B) To ensure compliance with tax regulations
C) To provide useful information to external users for decision-making
D) To prepare budgets for future operations
Answer: C) To provide useful information to external users for decision-making
Rationale: The primary goal of financial accounting is to provide external users such as
investors and creditors with useful financial information. Internal management
decisions are the focus of managerial accounting .
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10. Which of the following is NOT a qualitative characteristic of GAAP?
A) Relevance
B) Faithful Representation
C) Comparability
D) Profitability
Answer: D) Profitability
Rationale: The qualitative characteristics of GAAP include relevance, faithful
representation, comparability, verifiability, timeliness, and understandability.
Profitability is a performance outcome, not a qualitative characteristic .
11. Which of the following cash flow method reports major classes of gross cash
receipts and payments?
A) Indirect method
B) Hybrid method
C) Direct method
D) Accrual method
Answer: C) Direct method
Rationale: The direct method presents actual cash inflows and outflows from operating
activities, while the indirect method starts with net income and adjusts for non-cash
items .
12. Which cost is NOT a product cost?
A) Direct materials
B) Direct labor
C) Manufacturing overhead
D) Selling expense
Answer: D) Selling expense
Rationale: Selling expenses are period costs, not product costs. Product costs include
direct materials, direct labor, and manufacturing overhead .
13. What is the primary focus of managerial accounting?
A) External reporting
B) Tax compliance
