Certified Management Accountant (CMA) Exam
Question 1: In which financial statement would you primarily find information about a
company’s liquidity and solvency?
A. Income Statement
B. Balance Sheet
C. Statement of Retained Earnings
D. Statement of Cash Flows
Answer: B
Explanation: The Balance Sheet provides a snapshot of a company’s assets, liabilities, and
equity, thus directly reflecting its liquidity and solvency.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 2:
Which set of accounting standards is predominantly used in the United States?
A. IFRS
B. GAAP
C. IPSAS
D. FASB
Answer: B
Explanation: Generally Accepted Accounting Principles (GAAP) are the standard framework of
guidelines for financial accounting used in the United States.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 3:
Under IFRS, which principle is used to ensure that revenues are recognized when earned
and measurable?
A. Matching Principle
B. Historical Cost Principle
C. Revenue Recognition Principle
D. Conservatism Principle
Answer: C
Explanation: The Revenue Recognition Principle under IFRS mandates that revenue is
recognized when it is earned and can be measured reliably.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 4:
Which of the following best describes consolidation in financial reporting?
A. Combining the financial results of a parent and its subsidiaries
B. Reporting only the parent company’s performance
C. Merging two independent companies’ financial statements
D. Reporting intercompany transactions separately
Answer: A
Explanation: Consolidation involves combining the financial statements of a parent company and
its subsidiaries into a single set of financial statements.
,–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 5:
When preparing financial statements, what is the purpose of classifying assets as current or
non-current?
A. To determine tax liabilities
B. To assist in liquidity analysis and operational planning
C. To calculate profitability ratios
D. To establish the cost of goods sold
Answer: B
Explanation: Classifying assets as current or non-current helps users understand the liquidity
position and operational capabilities of a business.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 6:
Which concept requires that the cost incurred to generate revenue should be matched
against that revenue in the same period?
A. Consistency Principle
B. Matching Principle
C. Accrual Principle
D. Materiality Principle
Answer: B
Explanation: The Matching Principle requires that expenses be matched with revenues in the
period in which the revenue is earned, providing a clearer picture of profitability.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 7:
Revenue recognition for long-term contracts often employs which method?
A. Completed-contract method
B. Cash method
C. Absorption costing
D. Standard costing
Answer: A
Explanation: The completed-contract method defers revenue recognition until the project is
complete, which is common in long-term contracts.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 8:
Which of the following is not considered a long-term liability?
A. Bonds payable due in 15 years
B. Notes payable due in 6 months
C. Mortgage payable on a property
D. Long-term lease obligations
Answer: B
Explanation: Notes payable due in 6 months are classified as current liabilities since they mature
within one year.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 9:
What is the primary objective of external financial reporting?
A. To provide tax information
B. To communicate a company’s financial performance and position to external users
,C. To assist management in decision-making
D. To facilitate internal audits
Answer: B
Explanation: External financial reporting aims to provide relevant financial information to
external stakeholders such as investors, creditors, and regulators.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 10:
In the context of financial instruments, which item would be reported at fair value on the
balance sheet?
A. Property, Plant, and Equipment
B. Inventory
C. Available-for-sale securities
D. Accounts payable
Answer: C
Explanation: Available-for-sale securities are typically reported at fair value on the balance
sheet, reflecting current market conditions.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 11:
Which principle requires that financial statements should faithfully represent a company’s
economic activities?
A. Substance over form
B. Historical cost
C. Conservatism
D. Full disclosure
Answer: A
Explanation: The substance over form principle ensures that financial statements reflect the
economic reality of transactions rather than merely their legal form.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 12:
How does the accrual basis of accounting differ from cash basis?
A. It records transactions only when cash is received
B. It matches revenue with related expenses irrespective of cash flow timing
C. It recognizes revenue after cash collection
D. It delays expense recognition until payment
Answer: B
Explanation: The accrual basis of accounting records revenue when earned and expenses when
incurred, regardless of when cash is exchanged.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 13:
Which financial statement best reflects a company’s operational performance over a period
of time?
A. Balance Sheet
B. Income Statement
C. Cash Flow Statement
D. Statement of Changes in Equity
Answer: B
, Explanation: The Income Statement summarizes revenues and expenses over a period, thereby
reflecting operational performance.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 14:
Which concept under GAAP ensures consistency and comparability of financial
statements?
A. Materiality
B. Conservatism
C. Consistency
D. Economic entity
Answer: C
Explanation: The consistency principle under GAAP requires that companies use the same
accounting methods from period to period, aiding comparability.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 15:
In a joint venture, how are the financial results typically reported in the consolidated
financial statements?
A. Full consolidation
B. Proportional consolidation or equity method
C. Cost method only
D. As a separate entity
Answer: B
Explanation: Joint ventures are usually reported using the equity method or proportional
consolidation, reflecting the investor’s share of income and expenses.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 16:
Which of the following is an example of a non-current asset?
A. Inventory
B. Accounts Receivable
C. Land and buildings
D. Prepaid expenses
Answer: C
Explanation: Land and buildings are classified as non-current assets because they are held for
long-term use and are not intended for sale.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 17:
What does the term “fair value” mean in financial reporting?
A. Historical cost adjusted for inflation
B. The price that would be received to sell an asset in an orderly transaction between market
participants
C. Book value plus depreciation
D. The maximum price a buyer is willing to pay
Answer: B
Explanation: Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants.
Question 1: In which financial statement would you primarily find information about a
company’s liquidity and solvency?
A. Income Statement
B. Balance Sheet
C. Statement of Retained Earnings
D. Statement of Cash Flows
Answer: B
Explanation: The Balance Sheet provides a snapshot of a company’s assets, liabilities, and
equity, thus directly reflecting its liquidity and solvency.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 2:
Which set of accounting standards is predominantly used in the United States?
A. IFRS
B. GAAP
C. IPSAS
D. FASB
Answer: B
Explanation: Generally Accepted Accounting Principles (GAAP) are the standard framework of
guidelines for financial accounting used in the United States.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 3:
Under IFRS, which principle is used to ensure that revenues are recognized when earned
and measurable?
A. Matching Principle
B. Historical Cost Principle
C. Revenue Recognition Principle
D. Conservatism Principle
Answer: C
Explanation: The Revenue Recognition Principle under IFRS mandates that revenue is
recognized when it is earned and can be measured reliably.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 4:
Which of the following best describes consolidation in financial reporting?
A. Combining the financial results of a parent and its subsidiaries
B. Reporting only the parent company’s performance
C. Merging two independent companies’ financial statements
D. Reporting intercompany transactions separately
Answer: A
Explanation: Consolidation involves combining the financial statements of a parent company and
its subsidiaries into a single set of financial statements.
,–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 5:
When preparing financial statements, what is the purpose of classifying assets as current or
non-current?
A. To determine tax liabilities
B. To assist in liquidity analysis and operational planning
C. To calculate profitability ratios
D. To establish the cost of goods sold
Answer: B
Explanation: Classifying assets as current or non-current helps users understand the liquidity
position and operational capabilities of a business.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 6:
Which concept requires that the cost incurred to generate revenue should be matched
against that revenue in the same period?
A. Consistency Principle
B. Matching Principle
C. Accrual Principle
D. Materiality Principle
Answer: B
Explanation: The Matching Principle requires that expenses be matched with revenues in the
period in which the revenue is earned, providing a clearer picture of profitability.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 7:
Revenue recognition for long-term contracts often employs which method?
A. Completed-contract method
B. Cash method
C. Absorption costing
D. Standard costing
Answer: A
Explanation: The completed-contract method defers revenue recognition until the project is
complete, which is common in long-term contracts.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 8:
Which of the following is not considered a long-term liability?
A. Bonds payable due in 15 years
B. Notes payable due in 6 months
C. Mortgage payable on a property
D. Long-term lease obligations
Answer: B
Explanation: Notes payable due in 6 months are classified as current liabilities since they mature
within one year.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 9:
What is the primary objective of external financial reporting?
A. To provide tax information
B. To communicate a company’s financial performance and position to external users
,C. To assist management in decision-making
D. To facilitate internal audits
Answer: B
Explanation: External financial reporting aims to provide relevant financial information to
external stakeholders such as investors, creditors, and regulators.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 10:
In the context of financial instruments, which item would be reported at fair value on the
balance sheet?
A. Property, Plant, and Equipment
B. Inventory
C. Available-for-sale securities
D. Accounts payable
Answer: C
Explanation: Available-for-sale securities are typically reported at fair value on the balance
sheet, reflecting current market conditions.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 11:
Which principle requires that financial statements should faithfully represent a company’s
economic activities?
A. Substance over form
B. Historical cost
C. Conservatism
D. Full disclosure
Answer: A
Explanation: The substance over form principle ensures that financial statements reflect the
economic reality of transactions rather than merely their legal form.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 12:
How does the accrual basis of accounting differ from cash basis?
A. It records transactions only when cash is received
B. It matches revenue with related expenses irrespective of cash flow timing
C. It recognizes revenue after cash collection
D. It delays expense recognition until payment
Answer: B
Explanation: The accrual basis of accounting records revenue when earned and expenses when
incurred, regardless of when cash is exchanged.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 13:
Which financial statement best reflects a company’s operational performance over a period
of time?
A. Balance Sheet
B. Income Statement
C. Cash Flow Statement
D. Statement of Changes in Equity
Answer: B
, Explanation: The Income Statement summarizes revenues and expenses over a period, thereby
reflecting operational performance.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 14:
Which concept under GAAP ensures consistency and comparability of financial
statements?
A. Materiality
B. Conservatism
C. Consistency
D. Economic entity
Answer: C
Explanation: The consistency principle under GAAP requires that companies use the same
accounting methods from period to period, aiding comparability.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 15:
In a joint venture, how are the financial results typically reported in the consolidated
financial statements?
A. Full consolidation
B. Proportional consolidation or equity method
C. Cost method only
D. As a separate entity
Answer: B
Explanation: Joint ventures are usually reported using the equity method or proportional
consolidation, reflecting the investor’s share of income and expenses.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 16:
Which of the following is an example of a non-current asset?
A. Inventory
B. Accounts Receivable
C. Land and buildings
D. Prepaid expenses
Answer: C
Explanation: Land and buildings are classified as non-current assets because they are held for
long-term use and are not intended for sale.
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Question 17:
What does the term “fair value” mean in financial reporting?
A. Historical cost adjusted for inflation
B. The price that would be received to sell an asset in an orderly transaction between market
participants
C. Book value plus depreciation
D. The maximum price a buyer is willing to pay
Answer: B
Explanation: Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants.
