Unit 1 of 5
Study guide for CLEP CLEP Financial Accounting — Unit 1: The Accounting Cycle. Practice questions, key concepts, and exam tips.
243
Practice Questions
15
Flashcards
4
Key Topics
Try these 5 questions from this unit. Sign up for full access to all 243.
Which of the following is an example of corporate social responsibility?
Donating to charity
Reducing employee benefits
Increasing executive compensation
Ignoring environmental concerns
Prioritizing shareholder value
Answer: A — Donating to charity is correct because corporate social responsibility involves businesses engaging in activities that benefit society, such as charitable donations, volunteer work, and environmental sustainability initiatives.
At what point are financial statements prepared?
After the adjusted trial balance
Before the adjusted trial balance
After the post-closing trial balance
Before the post-closing trial balance
During the journalizing process
Answer: A — Financial statements are prepared After the adjusted trial balance, which is the point when all adjustments have been made to the accounts and the ledger is up-to-date. This ensures that the financial statements reflect accurate and complete information. In contrast, preparing them Before the adjusted trial balance, like option "Before the adjusted trial balance", would be premature as adjustments may not be accounted for.
What is the purpose of disclosing contingent liabilities in the financial statements?
To recognize a liability
To recognize a gain
To provide information to investors and creditors
To ignore the contingency
To recognize a loss
Answer: C — To provide information to investors and creditors is correct because the purpose of disclosing contingent liabilities is to provide information to investors and creditors about the potential risks and liabilities of the company.
Which financial statement is used to evaluate a company's ability to generate cash?
Balance Sheet
Income Statement
Cash Flow Statement
Statement of Stockholders' Equity
Notes to the Financial Statements
Answer: C — The Cash Flow Statement is correct because it provides information about the inflows and outflows of cash and cash equivalents of a company over a specific period of time, by classifying cash flows into operating, investing, and financing activities, allowing users to evaluate a company's ability to generate cash.
What does the indirect method of calculating net cash provided by operating activities start with?
Net sales
Cost of goods sold
Total liabilities
Total assets
Net income
Answer: E — Net income is correct because the indirect method starts with net income, which is the bottom line of the income statement, and then makes adjustments for non-cash items and changes in working capital accounts.
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