CPA Accounts Q&A Exam - 100+
Questions with Rationales
Comprehensive Study Guide for CPA
Accounting Examination
Question 1
Which of the following best describes the matching principle in
accounting?
A) Revenue should be recorded when cash is received
B) Expenses should be recorded in the same period as the revenues they
help generate
C) Assets should be recorded at their current market value
D) Liabilities should be recorded when they are paid
Answer: B
Rationale: The matching principle requires that expenses be recognized in
the same accounting period as the revenues they help to generate. This
ensures that the income statement properly reflects the relationship
between revenues and the costs incurred to generate those revenues,
providing a more accurate picture of profitability.
Question 2
Under the accrual basis of accounting, when should revenue be
recognized?
,A) When cash is received
B) When the invoice is sent
C) When goods are delivered or services are performed
D) At the end of the accounting period
Answer: C
Rationale: Revenue recognition under accrual accounting occurs when
goods are delivered or services are performed, regardless of when payment
is received. This follows the revenue recognition principle, which states that
revenue should be recognized when it is earned, not necessarily when cash
changes hands.
Question 3
What is the primary purpose of the statement of cash flows?
A) To show the company's profitability
B) To display the financial position at a point in time
C) To provide information about cash receipts and payments during a period
D) To show changes in stockholders' equity
Answer: C
Rationale: The statement of cash flows provides information about a
company's cash receipts and cash payments during a specific period. It
categorizes cash flows into operating, investing, and financing activities,
helping users understand how the company generates and uses cash.
Question 4
Which inventory costing method typically results in the highest net
income during periods of rising prices?
,A) FIFO (First-In, First-Out)
B) LIFO (Last-In, First-Out)
C) Weighted Average
D) Specific Identification
Answer: A
Rationale: During periods of rising prices, FIFO results in the highest net
income because it matches the oldest (and typically lowest) costs against
current revenues. This leaves the newer, higher-cost inventory on the
balance sheet and reports lower cost of goods sold, resulting in higher gross
profit and net income.
Question 5
What is the normal balance of the Allowance for Doubtful Accounts?
A) Debit
B) Credit
C) Either debit or credit depending on the circumstances
D) Zero balance
Answer: B
Rationale: Allowance for Doubtful Accounts is a contra-asset account that
reduces the carrying value of Accounts Receivable. As a contra-asset
account, it has a normal credit balance, which is opposite to the normal debit
balance of the asset account it offsets.
Question 6
Which of the following would be classified as an operating activity in
the statement of cash flows?
, A) Purchase of equipment
B) Payment of dividends
C) Collection of accounts receivable
D) Issuance of bonds
Answer: C
Rationale: Collection of accounts receivable is an operating activity because
it relates to the primary revenue-generating activities of the business.
Operating activities include transactions that affect net income and current
assets and liabilities related to operations.
Question 7
What is the accounting equation?
A) Assets = Liabilities + Owner's Equity
B) Assets = Liabilities - Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Revenue - Expenses = Net Income
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities +
Owner's Equity. This equation must always balance and forms the foundation
of double-entry bookkeeping. It shows that a company's assets are financed
by either borrowing (liabilities) or owner investment (equity).
Question 8
Depreciation expense is recorded to:
A) Reduce the asset's market value
Questions with Rationales
Comprehensive Study Guide for CPA
Accounting Examination
Question 1
Which of the following best describes the matching principle in
accounting?
A) Revenue should be recorded when cash is received
B) Expenses should be recorded in the same period as the revenues they
help generate
C) Assets should be recorded at their current market value
D) Liabilities should be recorded when they are paid
Answer: B
Rationale: The matching principle requires that expenses be recognized in
the same accounting period as the revenues they help to generate. This
ensures that the income statement properly reflects the relationship
between revenues and the costs incurred to generate those revenues,
providing a more accurate picture of profitability.
Question 2
Under the accrual basis of accounting, when should revenue be
recognized?
,A) When cash is received
B) When the invoice is sent
C) When goods are delivered or services are performed
D) At the end of the accounting period
Answer: C
Rationale: Revenue recognition under accrual accounting occurs when
goods are delivered or services are performed, regardless of when payment
is received. This follows the revenue recognition principle, which states that
revenue should be recognized when it is earned, not necessarily when cash
changes hands.
Question 3
What is the primary purpose of the statement of cash flows?
A) To show the company's profitability
B) To display the financial position at a point in time
C) To provide information about cash receipts and payments during a period
D) To show changes in stockholders' equity
Answer: C
Rationale: The statement of cash flows provides information about a
company's cash receipts and cash payments during a specific period. It
categorizes cash flows into operating, investing, and financing activities,
helping users understand how the company generates and uses cash.
Question 4
Which inventory costing method typically results in the highest net
income during periods of rising prices?
,A) FIFO (First-In, First-Out)
B) LIFO (Last-In, First-Out)
C) Weighted Average
D) Specific Identification
Answer: A
Rationale: During periods of rising prices, FIFO results in the highest net
income because it matches the oldest (and typically lowest) costs against
current revenues. This leaves the newer, higher-cost inventory on the
balance sheet and reports lower cost of goods sold, resulting in higher gross
profit and net income.
Question 5
What is the normal balance of the Allowance for Doubtful Accounts?
A) Debit
B) Credit
C) Either debit or credit depending on the circumstances
D) Zero balance
Answer: B
Rationale: Allowance for Doubtful Accounts is a contra-asset account that
reduces the carrying value of Accounts Receivable. As a contra-asset
account, it has a normal credit balance, which is opposite to the normal debit
balance of the asset account it offsets.
Question 6
Which of the following would be classified as an operating activity in
the statement of cash flows?
, A) Purchase of equipment
B) Payment of dividends
C) Collection of accounts receivable
D) Issuance of bonds
Answer: C
Rationale: Collection of accounts receivable is an operating activity because
it relates to the primary revenue-generating activities of the business.
Operating activities include transactions that affect net income and current
assets and liabilities related to operations.
Question 7
What is the accounting equation?
A) Assets = Liabilities + Owner's Equity
B) Assets = Liabilities - Owner's Equity
C) Assets + Liabilities = Owner's Equity
D) Revenue - Expenses = Net Income
Answer: A
Rationale: The fundamental accounting equation is Assets = Liabilities +
Owner's Equity. This equation must always balance and forms the foundation
of double-entry bookkeeping. It shows that a company's assets are financed
by either borrowing (liabilities) or owner investment (equity).
Question 8
Depreciation expense is recorded to:
A) Reduce the asset's market value
