California CPA Exam Practice Questions
With Correct Answers (Verified Answers)
Plus Rationales 2026 Q&A | Instant
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1. Which of the following best describes the primary purpose of an
audit engagement?
A. To prepare financial statements
B. To detect all fraud
C. To express an opinion on financial statements
D. To guarantee future profitability
Answer: C
Rationale: The objective of an audit is for the auditor to express an
opinion on whether the financial statements are presented fairly in
accordance with the applicable financial reporting framework.
2. Under U.S. GAAP, revenue is generally recognized when:
A. Cash is received
B. The performance obligation is satisfied
C. Inventory is purchased
D. Management approves the transaction
Answer: B
,Rationale: ASC 606 requires revenue recognition when control of
goods or services transfers to the customer through satisfaction of
performance obligations.
3. Which internal control activity helps prevent unauthorized access
to assets?
A. Bank reconciliation
B. Segregation of duties
C. Physical safeguards
D. Analytical review
Answer: C
Rationale: Physical safeguards such as locks, passwords, and restricted
access help protect company assets from theft or misuse.
4. What is the normal balance of the Accounts Payable account?
A. Debit
B. Credit
C. Zero
D. Temporary
Answer: B
Rationale: Accounts Payable is a liability account, and liabilities
normally carry credit balances.
5. Which of the following is classified as a current asset?
,A. Land
B. Patent
C. Accounts Receivable
D. Bonds Payable
Answer: C
Rationale: Accounts Receivable is expected to be collected within one
year and therefore qualifies as a current asset.
6. Depreciation is best defined as:
A. Decline in market value
B. Allocation of cost over useful life
C. Cash reserve for replacement
D. Asset impairment
Answer: B
Rationale: Depreciation allocates the historical cost of a tangible asset
systematically over its estimated useful life.
7. Which audit opinion is issued when financial statements are
materially misstated?
A. Unmodified
B. Qualified
C. Adverse
D. Disclaimer
Answer: C
, Rationale: An adverse opinion is issued when material misstatements
are both material and pervasive to the financial statements.
8. Which of the following taxes is imposed on an employer only?
A. Federal income tax withholding
B. Social Security tax
C. FUTA tax
D. Medicare tax
Answer: C
Rationale: Federal Unemployment Tax Act (FUTA) taxes are paid solely
by employers.
9. The matching principle requires expenses to be recognized:
A. When cash is paid
B. In the same period as related revenues
C. At year-end only
D. When approved by management
Answer: B
Rationale: The matching principle aligns expenses with the revenues
they helped generate in the same accounting period.
10. Which financial statement reports revenues and expenses?
A. Balance Sheet
B. Statement of Cash Flows
With Correct Answers (Verified Answers)
Plus Rationales 2026 Q&A | Instant
Download Pdf
1. Which of the following best describes the primary purpose of an
audit engagement?
A. To prepare financial statements
B. To detect all fraud
C. To express an opinion on financial statements
D. To guarantee future profitability
Answer: C
Rationale: The objective of an audit is for the auditor to express an
opinion on whether the financial statements are presented fairly in
accordance with the applicable financial reporting framework.
2. Under U.S. GAAP, revenue is generally recognized when:
A. Cash is received
B. The performance obligation is satisfied
C. Inventory is purchased
D. Management approves the transaction
Answer: B
,Rationale: ASC 606 requires revenue recognition when control of
goods or services transfers to the customer through satisfaction of
performance obligations.
3. Which internal control activity helps prevent unauthorized access
to assets?
A. Bank reconciliation
B. Segregation of duties
C. Physical safeguards
D. Analytical review
Answer: C
Rationale: Physical safeguards such as locks, passwords, and restricted
access help protect company assets from theft or misuse.
4. What is the normal balance of the Accounts Payable account?
A. Debit
B. Credit
C. Zero
D. Temporary
Answer: B
Rationale: Accounts Payable is a liability account, and liabilities
normally carry credit balances.
5. Which of the following is classified as a current asset?
,A. Land
B. Patent
C. Accounts Receivable
D. Bonds Payable
Answer: C
Rationale: Accounts Receivable is expected to be collected within one
year and therefore qualifies as a current asset.
6. Depreciation is best defined as:
A. Decline in market value
B. Allocation of cost over useful life
C. Cash reserve for replacement
D. Asset impairment
Answer: B
Rationale: Depreciation allocates the historical cost of a tangible asset
systematically over its estimated useful life.
7. Which audit opinion is issued when financial statements are
materially misstated?
A. Unmodified
B. Qualified
C. Adverse
D. Disclaimer
Answer: C
, Rationale: An adverse opinion is issued when material misstatements
are both material and pervasive to the financial statements.
8. Which of the following taxes is imposed on an employer only?
A. Federal income tax withholding
B. Social Security tax
C. FUTA tax
D. Medicare tax
Answer: C
Rationale: Federal Unemployment Tax Act (FUTA) taxes are paid solely
by employers.
9. The matching principle requires expenses to be recognized:
A. When cash is paid
B. In the same period as related revenues
C. At year-end only
D. When approved by management
Answer: B
Rationale: The matching principle aligns expenses with the revenues
they helped generate in the same accounting period.
10. Which financial statement reports revenues and expenses?
A. Balance Sheet
B. Statement of Cash Flows
