WALL STREET PREP ACCOUNTING
CRASH COURSE EXAM V4
Complete 150-Question Test Bank
with Answers & Detailed Rationales
Exam Overview
The Wall Street Prep Accounting Crash Course Exam V4 is a comprehensive assessment
covering US GAAP fundamentals including the accounting equation, financial statements,
accrual accounting, revenue recognition, SEC reporting, stock-based compensation, PP&E and
depreciation, and ratio analysis.
Exam Format:
- Questions: 40-50 multiple-choice questions (this test bank contains 150 practice questions)
- Duration: 2 hours
- Passing Score: 70-75% (approximately 38 correct out of 50)
- Assumptions: US GAAP unless specified; all dollar amounts in millions unless stated; tax rate
40% unless specified
SECTION 1: ACCOUNTING PRINCIPLES & CONCEPTS (Questions 1-30)
Question 1
According to the course material, accounting is best described as:
A) A method for calculating taxes
B) The language of business that standardizes financial performance measurement
C) A tool exclusively used by accountants
D) A system for tracking cash flows only
Correct Answer: B
Rationale: The course explicitly states that "accounting is the language of business" and that it
is "a standard set of rules for measuring a firm's financial performance." It is important for
,managers, investors, lenders, and the general public, not solely for tax purposes nor used only
by accountants.
Question 2
The Securities and Exchange Commission (SEC) was established by the U.S. Congress in
which year?
A) 1929
B) 1934
C) 1973
D) 1940
Correct Answer: B
Rationale: Following the stock market crash of 1929, the SEC was created in 1934 to regulate
the securities markets and protect investors. It is a U.S. federal agency that oversees financial
reporting by publicly traded companies.
Question 3
Which organization is directly responsible for establishing U.S. accounting standards?
A) Securities and Exchange Commission (SEC)
B) Financial Accounting Standards Board (FASB)
C) International Accounting Standards Board (IASB)
D) American Institute of CPAs (AICPA)
Correct Answer: B
Rationale: The SEC authorizes the Financial Accounting Standards Board (FASB) to determine
U.S. accounting rules. The FASB is a private sector body established in 1973 that issues
Statements of Financial Accounting Standards (SFAS), which form U.S. GAAP.
Question 4
What does GAAP stand for?
A) Generally Accepted Accounting Procedures
B) Generally Accepted Accounting Principles
C) Governmental Accounting and Auditing Practices
,D) Global Association of Accounting Professionals
Correct Answer: B
Rationale: GAAP stands for Generally Accepted Accounting Principles. These are the standards
and rules that accountants follow while recording and reporting financial activities.
Question 5
Under the Historical Cost Principle, if a company purchased land for $1 million that is now worth
$3 million, the land should be recorded on the financial statements at:
A) $3 million (current market value)
B) $1 million (original purchase price)
C) $2 million (average of cost and market value)
D) The amount can vary based on management's discretion
Correct Answer: B
Rationale: Financial statements report companies' resources at an initial historical cost. This
represents the easiest measurement method without a need for appraisal and revaluation.
Marking resources up to fair value allows for management discretion and subjectivity, which US
GAAP attempts to minimize by using historical cost.
Question 6
Which of the following is NOT one of the four basic accounting assumptions?
A) Accounting Entity
B) Going Concern
C) Historical Cost
D) Measurement
Correct Answer: C
Rationale: The four underlying assumptions of accounting are: (1) Accounting Entity, (2) Going
Concern, (3) Measurement, and (4) Periodicity. Historical Cost is a principle, not an assumption.
Question 7
The Matching Principle requires that:
, A) Revenues must be matched with cash receipts
B) Costs associated with making a product must be recorded in the same period as the revenue
from that product
C) Assets must be matched with liabilities
D) Expenses must be recorded when cash is paid
Correct Answer: B
Rationale: The matching principle ensures that the timing of expenses follows the timing of the
associated revenue, regardless of when cash changes hands. This is a fundamental accrual
accounting concept.
Question 8
Under the Full Disclosure Principle, companies must reveal relevant economic information in all
of the following EXCEPT:
A) Financial statements
B) Notes to financial statements
C) Internal management memos
D) Supplementary information
Correct Answer: C
Rationale: Full disclosure requires that material information be included in financial statements,
footnotes, or supplementary reports. Internal management memos are not required to be
publicly disclosed.
Question 9
The concept of "Going Concern" assumes that:
A) The company will go out of business next year
B) A company is considered a "going concern" for the foreseeable future; it is assumed to
remain in existence indefinitely
C) The company will be sold within the year
D) The company only cares about current profits
Correct Answer: B
CRASH COURSE EXAM V4
Complete 150-Question Test Bank
with Answers & Detailed Rationales
Exam Overview
The Wall Street Prep Accounting Crash Course Exam V4 is a comprehensive assessment
covering US GAAP fundamentals including the accounting equation, financial statements,
accrual accounting, revenue recognition, SEC reporting, stock-based compensation, PP&E and
depreciation, and ratio analysis.
Exam Format:
- Questions: 40-50 multiple-choice questions (this test bank contains 150 practice questions)
- Duration: 2 hours
- Passing Score: 70-75% (approximately 38 correct out of 50)
- Assumptions: US GAAP unless specified; all dollar amounts in millions unless stated; tax rate
40% unless specified
SECTION 1: ACCOUNTING PRINCIPLES & CONCEPTS (Questions 1-30)
Question 1
According to the course material, accounting is best described as:
A) A method for calculating taxes
B) The language of business that standardizes financial performance measurement
C) A tool exclusively used by accountants
D) A system for tracking cash flows only
Correct Answer: B
Rationale: The course explicitly states that "accounting is the language of business" and that it
is "a standard set of rules for measuring a firm's financial performance." It is important for
,managers, investors, lenders, and the general public, not solely for tax purposes nor used only
by accountants.
Question 2
The Securities and Exchange Commission (SEC) was established by the U.S. Congress in
which year?
A) 1929
B) 1934
C) 1973
D) 1940
Correct Answer: B
Rationale: Following the stock market crash of 1929, the SEC was created in 1934 to regulate
the securities markets and protect investors. It is a U.S. federal agency that oversees financial
reporting by publicly traded companies.
Question 3
Which organization is directly responsible for establishing U.S. accounting standards?
A) Securities and Exchange Commission (SEC)
B) Financial Accounting Standards Board (FASB)
C) International Accounting Standards Board (IASB)
D) American Institute of CPAs (AICPA)
Correct Answer: B
Rationale: The SEC authorizes the Financial Accounting Standards Board (FASB) to determine
U.S. accounting rules. The FASB is a private sector body established in 1973 that issues
Statements of Financial Accounting Standards (SFAS), which form U.S. GAAP.
Question 4
What does GAAP stand for?
A) Generally Accepted Accounting Procedures
B) Generally Accepted Accounting Principles
C) Governmental Accounting and Auditing Practices
,D) Global Association of Accounting Professionals
Correct Answer: B
Rationale: GAAP stands for Generally Accepted Accounting Principles. These are the standards
and rules that accountants follow while recording and reporting financial activities.
Question 5
Under the Historical Cost Principle, if a company purchased land for $1 million that is now worth
$3 million, the land should be recorded on the financial statements at:
A) $3 million (current market value)
B) $1 million (original purchase price)
C) $2 million (average of cost and market value)
D) The amount can vary based on management's discretion
Correct Answer: B
Rationale: Financial statements report companies' resources at an initial historical cost. This
represents the easiest measurement method without a need for appraisal and revaluation.
Marking resources up to fair value allows for management discretion and subjectivity, which US
GAAP attempts to minimize by using historical cost.
Question 6
Which of the following is NOT one of the four basic accounting assumptions?
A) Accounting Entity
B) Going Concern
C) Historical Cost
D) Measurement
Correct Answer: C
Rationale: The four underlying assumptions of accounting are: (1) Accounting Entity, (2) Going
Concern, (3) Measurement, and (4) Periodicity. Historical Cost is a principle, not an assumption.
Question 7
The Matching Principle requires that:
, A) Revenues must be matched with cash receipts
B) Costs associated with making a product must be recorded in the same period as the revenue
from that product
C) Assets must be matched with liabilities
D) Expenses must be recorded when cash is paid
Correct Answer: B
Rationale: The matching principle ensures that the timing of expenses follows the timing of the
associated revenue, regardless of when cash changes hands. This is a fundamental accrual
accounting concept.
Question 8
Under the Full Disclosure Principle, companies must reveal relevant economic information in all
of the following EXCEPT:
A) Financial statements
B) Notes to financial statements
C) Internal management memos
D) Supplementary information
Correct Answer: C
Rationale: Full disclosure requires that material information be included in financial statements,
footnotes, or supplementary reports. Internal management memos are not required to be
publicly disclosed.
Question 9
The concept of "Going Concern" assumes that:
A) The company will go out of business next year
B) A company is considered a "going concern" for the foreseeable future; it is assumed to
remain in existence indefinitely
C) The company will be sold within the year
D) The company only cares about current profits
Correct Answer: B
