Page 1 of 71
ACCOUNTING FOR DECISION MAKERS - C213 -
STUDY GUIDE ( 100 ) QUESTIONS WITH RADICLE
RATIONALES
Accounting / Finance
Exam coverage:
I. Section 1 (Q1–25): Foundational accounting concepts,
principles, assumptions, and the accounting equation.
II. Section 2 (Q26–50): Balance sheet components,
asset/liability classification, equity, and financial ratios.
III. Section 3 (Q51–75): Income statement preparation,
profitability analysis, and performance metrics.
IV. Section 4 (Q76–100): Statement of cash flows preparation,
classification of cash flows, and cash flow analysis.
V. Section 5 (Q101–125): Cost concepts, CVP analysis, relevant
costs, capital budgeting, and variance analysis.
VI. Section 6 (Q126–150): Budgeting, ethics, sustainability,
performance measurement, and contemporary issues.
Section 1: Foundational Accounting Concepts & The
Accounting Environment (Questions 1–25)
Question 1
A business owner is reviewing the company's financial records
and notes that the accounting system provides "quantitative
information, primarily financial in nature, about economic
entities that is intended to be useful in making economic
decisions." This definition most accurately describes which of
, Page 2 of 71
the following?
A. Managerial accounting
B. Financial accounting
C. Accounting
D. Bookkeeping
CORRECT ANSWER: C
RATIONALE: This is the formal definition of accounting itself—a
system of providing quantitative, primarily financial information
about economic entities to support economic decision-
making. Managerial and financial accounting are subsets, while
bookkeeping is only the recording component.
Question 2
A company's management team is preparing the annual budget
and needs to understand how accounting information supports
their planning and control functions. According to the
framework of accounting for decision makers, accounting
information helps management to perform all of the following
EXCEPT:
A. Decide what prices to charge for products
B. Determine how to control operations
C. Make marketing decisions
D. Eliminate all financial risk from business operations
CORRECT ANSWER: D
RATIONALE: Accounting information helps management with
pricing, operational control, and marketing decisions. However,
accounting cannot eliminate all financial risk—it provides
information to help manage and understand risk, but risk
cannot be entirely eliminated.
, Page 3 of 71
Question 3
A financial analyst is evaluating a company's performance and
needs to understand the three primary financial statements.
Which of the following correctly identifies the three primary
financial statements?
A. Balance sheet, income statement, and statement of cash
flows
B. Balance sheet, income statement, and statement of retained
earnings
C. Income statement, statement of cash flows, and trial
balance
D. Balance sheet, statement of cash flows, and general ledger
CORRECT ANSWER: A
RATIONALE: The three primary financial statements are the
balance sheet, the income statement, and the statement of
cash flows. The statement of retained earnings is sometimes
included but is not one of the three primary statements.
Question 4
A business student is learning about the fundamental
accounting equation. Which of the following correctly
expresses the accounting equation?
A. Assets = Liabilities - Owners' Equity
B. Assets = Liabilities + Owners' Equity
C. Assets + Liabilities = Owners' Equity
D. Assets + Owners' Equity = Liabilities
CORRECT ANSWER: B
, Page 4 of 71
RATIONALE: The fundamental accounting equation is Assets =
Liabilities + Owners' Equity. This equation must always balance
and forms the foundation of double-entry bookkeeping.
Question 5
A company is preparing its financial statements and needs to
follow the conceptual framework for financial reporting. Which
of the following is a fundamental qualitative characteristic of
useful financial information according to the conceptual
framework?
A. Comparability
B. Relevance
C. Timeliness
D. Verifiability
CORRECT ANSWER: B
RATIONALE: The fundamental qualitative characteristics are
relevance and faithful representation. Comparability,
timeliness, and verifiability are enhancing characteristics, not
fundamental ones.
Question 6
An accounting manager is explaining to a new employee that
the company's accounting records must follow specific rules
and standards. Which organization is primarily responsible for
establishing accounting standards in the United States?
A. International Accounting Standards Board (IASB)
B. Financial Accounting Standards Board (FASB)
C. Securities and Exchange Commission (SEC)
D. American Institute of Certified Public Accountants (AICPA)
CORRECT ANSWER: B
ACCOUNTING FOR DECISION MAKERS - C213 -
STUDY GUIDE ( 100 ) QUESTIONS WITH RADICLE
RATIONALES
Accounting / Finance
Exam coverage:
I. Section 1 (Q1–25): Foundational accounting concepts,
principles, assumptions, and the accounting equation.
II. Section 2 (Q26–50): Balance sheet components,
asset/liability classification, equity, and financial ratios.
III. Section 3 (Q51–75): Income statement preparation,
profitability analysis, and performance metrics.
IV. Section 4 (Q76–100): Statement of cash flows preparation,
classification of cash flows, and cash flow analysis.
V. Section 5 (Q101–125): Cost concepts, CVP analysis, relevant
costs, capital budgeting, and variance analysis.
VI. Section 6 (Q126–150): Budgeting, ethics, sustainability,
performance measurement, and contemporary issues.
Section 1: Foundational Accounting Concepts & The
Accounting Environment (Questions 1–25)
Question 1
A business owner is reviewing the company's financial records
and notes that the accounting system provides "quantitative
information, primarily financial in nature, about economic
entities that is intended to be useful in making economic
decisions." This definition most accurately describes which of
, Page 2 of 71
the following?
A. Managerial accounting
B. Financial accounting
C. Accounting
D. Bookkeeping
CORRECT ANSWER: C
RATIONALE: This is the formal definition of accounting itself—a
system of providing quantitative, primarily financial information
about economic entities to support economic decision-
making. Managerial and financial accounting are subsets, while
bookkeeping is only the recording component.
Question 2
A company's management team is preparing the annual budget
and needs to understand how accounting information supports
their planning and control functions. According to the
framework of accounting for decision makers, accounting
information helps management to perform all of the following
EXCEPT:
A. Decide what prices to charge for products
B. Determine how to control operations
C. Make marketing decisions
D. Eliminate all financial risk from business operations
CORRECT ANSWER: D
RATIONALE: Accounting information helps management with
pricing, operational control, and marketing decisions. However,
accounting cannot eliminate all financial risk—it provides
information to help manage and understand risk, but risk
cannot be entirely eliminated.
, Page 3 of 71
Question 3
A financial analyst is evaluating a company's performance and
needs to understand the three primary financial statements.
Which of the following correctly identifies the three primary
financial statements?
A. Balance sheet, income statement, and statement of cash
flows
B. Balance sheet, income statement, and statement of retained
earnings
C. Income statement, statement of cash flows, and trial
balance
D. Balance sheet, statement of cash flows, and general ledger
CORRECT ANSWER: A
RATIONALE: The three primary financial statements are the
balance sheet, the income statement, and the statement of
cash flows. The statement of retained earnings is sometimes
included but is not one of the three primary statements.
Question 4
A business student is learning about the fundamental
accounting equation. Which of the following correctly
expresses the accounting equation?
A. Assets = Liabilities - Owners' Equity
B. Assets = Liabilities + Owners' Equity
C. Assets + Liabilities = Owners' Equity
D. Assets + Owners' Equity = Liabilities
CORRECT ANSWER: B
, Page 4 of 71
RATIONALE: The fundamental accounting equation is Assets =
Liabilities + Owners' Equity. This equation must always balance
and forms the foundation of double-entry bookkeeping.
Question 5
A company is preparing its financial statements and needs to
follow the conceptual framework for financial reporting. Which
of the following is a fundamental qualitative characteristic of
useful financial information according to the conceptual
framework?
A. Comparability
B. Relevance
C. Timeliness
D. Verifiability
CORRECT ANSWER: B
RATIONALE: The fundamental qualitative characteristics are
relevance and faithful representation. Comparability,
timeliness, and verifiability are enhancing characteristics, not
fundamental ones.
Question 6
An accounting manager is explaining to a new employee that
the company's accounting records must follow specific rules
and standards. Which organization is primarily responsible for
establishing accounting standards in the United States?
A. International Accounting Standards Board (IASB)
B. Financial Accounting Standards Board (FASB)
C. Securities and Exchange Commission (SEC)
D. American Institute of Certified Public Accountants (AICPA)
CORRECT ANSWER: B
