ACCOUNTANT – CPA PRACTICE
EXAM PRACTICE QUESTIONS AND
CORRECT ANWERS AND (VERIFIED
ANSWERS) PLUS RATIONALES
2025/2026 Q&A | INSTANT DOWNLOAD
PDF
1. Which financial statement reports a company’s financial position at a specific point in
time?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Retained Earnings
Correct Answer: B – Balance Sheet. The balance sheet shows assets, liabilities, and equity on a
specific date, unlike the income statement and cash flows which cover a period.
2. Under accrual accounting, revenue is recognized when:
A. Cash is received
B. Services are performed or goods are delivered
C. Customer signs a contract
D. Invoice is issued
Correct Answer: B – Services performed or goods delivered. Accrual basis requires revenue
recognition when earned, not when cash is collected.
3. Depreciation is recorded to:
A. Match expenses with revenues
B. Reduce cash flow
C. Increase asset value
D. Decrease liabilities
,Correct Answer: A – Match expenses with revenues. Depreciation allocates the cost of assets
over their useful lives to match cost with revenue generation.
4. Which inventory method usually results in higher net income in periods of rising prices?
A. LIFO
B. FIFO
C. Weighted Average
D. Specific Identification
Correct Answer: B – FIFO. First-in, first-out assigns older (cheaper) costs to COGS, leaving
newer (higher) costs in ending inventory, thus higher net income in inflation.
5. Which of the following accounts normally has a credit balance?
A. Accounts Receivable
B. Salaries Expense
C. Common Stock
D. Prepaid Insurance
Correct Answer: C – Common Stock. Equity, liabilities, and revenue accounts typically carry
credit balances.
6. The primary purpose of an audit is to:
A. Detect all fraud
B. Provide absolute assurance of financial accuracy
C. Express an opinion on the fairness of financial statements
D. Prepare tax returns
Correct Answer: C – Express an opinion on the fairness of financial statements. Audits provide
reasonable assurance, not absolute detection of fraud.
7. The matching principle in accounting states that:
A. Assets must equal liabilities + equity
B. Expenses are recognized in the same period as revenues they help generate
C. Revenues should only be recognized when cash is received
D. Dividends must be paid when profits exist
Correct Answer: B – Expenses recognized in the same period as related revenues. This ensures
proper matching of costs and income.
, 8. Which of the following is NOT a component of internal control?
A. Control environment
B. Monitoring
C. Risk assessment
D. Shareholder dividends
Correct Answer: D – Shareholder dividends. Internal control includes control environment, risk
assessment, control activities, information, and monitoring, not dividend policy.
9. Which cost is considered a period cost under absorption costing?
A. Direct materials
B. Direct labor
C. Factory overhead
D. Selling and administrative expenses
Correct Answer: D – Selling and administrative expenses. These are not inventoried; they are
expensed in the period incurred.
10. The Sarbanes-Oxley Act (SOX) requires:
A. CEO and CFO certification of financial statements
B. Auditors to prepare company financials
C. Stock dividends to be declared annually
D. Only small firms to comply
Correct Answer: A – CEO and CFO certification. SOX increased accountability, requiring
executives to personally certify financial accuracy.
11. Which depreciation method results in the highest expense in the early years?
A. Straight-line
B. Units of production
C. Double-declining balance
D. Sum-of-the-years’-digits
Correct Answer: C – Double-declining balance. Accelerated methods like DDB record higher
expense earlier.
EXAM PRACTICE QUESTIONS AND
CORRECT ANWERS AND (VERIFIED
ANSWERS) PLUS RATIONALES
2025/2026 Q&A | INSTANT DOWNLOAD
1. Which financial statement reports a company’s financial position at a specific point in
time?
A. Income Statement
B. Balance Sheet
C. Statement of Cash Flows
D. Statement of Retained Earnings
Correct Answer: B – Balance Sheet. The balance sheet shows assets, liabilities, and equity on a
specific date, unlike the income statement and cash flows which cover a period.
2. Under accrual accounting, revenue is recognized when:
A. Cash is received
B. Services are performed or goods are delivered
C. Customer signs a contract
D. Invoice is issued
Correct Answer: B – Services performed or goods delivered. Accrual basis requires revenue
recognition when earned, not when cash is collected.
3. Depreciation is recorded to:
A. Match expenses with revenues
B. Reduce cash flow
C. Increase asset value
D. Decrease liabilities
,Correct Answer: A – Match expenses with revenues. Depreciation allocates the cost of assets
over their useful lives to match cost with revenue generation.
4. Which inventory method usually results in higher net income in periods of rising prices?
A. LIFO
B. FIFO
C. Weighted Average
D. Specific Identification
Correct Answer: B – FIFO. First-in, first-out assigns older (cheaper) costs to COGS, leaving
newer (higher) costs in ending inventory, thus higher net income in inflation.
5. Which of the following accounts normally has a credit balance?
A. Accounts Receivable
B. Salaries Expense
C. Common Stock
D. Prepaid Insurance
Correct Answer: C – Common Stock. Equity, liabilities, and revenue accounts typically carry
credit balances.
6. The primary purpose of an audit is to:
A. Detect all fraud
B. Provide absolute assurance of financial accuracy
C. Express an opinion on the fairness of financial statements
D. Prepare tax returns
Correct Answer: C – Express an opinion on the fairness of financial statements. Audits provide
reasonable assurance, not absolute detection of fraud.
7. The matching principle in accounting states that:
A. Assets must equal liabilities + equity
B. Expenses are recognized in the same period as revenues they help generate
C. Revenues should only be recognized when cash is received
D. Dividends must be paid when profits exist
Correct Answer: B – Expenses recognized in the same period as related revenues. This ensures
proper matching of costs and income.
, 8. Which of the following is NOT a component of internal control?
A. Control environment
B. Monitoring
C. Risk assessment
D. Shareholder dividends
Correct Answer: D – Shareholder dividends. Internal control includes control environment, risk
assessment, control activities, information, and monitoring, not dividend policy.
9. Which cost is considered a period cost under absorption costing?
A. Direct materials
B. Direct labor
C. Factory overhead
D. Selling and administrative expenses
Correct Answer: D – Selling and administrative expenses. These are not inventoried; they are
expensed in the period incurred.
10. The Sarbanes-Oxley Act (SOX) requires:
A. CEO and CFO certification of financial statements
B. Auditors to prepare company financials
C. Stock dividends to be declared annually
D. Only small firms to comply
Correct Answer: A – CEO and CFO certification. SOX increased accountability, requiring
executives to personally certify financial accuracy.
11. Which depreciation method results in the highest expense in the early years?
A. Straight-line
B. Units of production
C. Double-declining balance
D. Sum-of-the-years’-digits
Correct Answer: C – Double-declining balance. Accelerated methods like DDB record higher
expense earlier.
