PrepLion

Unit 1 of 5

Unit 1: The Accounting Cycle

Study guide for CLEP CLEP Financial Accounting — Unit 1: The Accounting Cycle. Practice questions, key concepts, and exam tips.

246

Practice Questions

15

Flashcards

4

Key Topics

Key Concepts to Study

double-entry bookkeeping
journal entries and T-accounts
adjusting entries
closing entries and trial balance

Sample Practice Questions

Try these 5 questions from this unit. Sign up for full access to all 246.

Q1EASY

Which of the following is an example of corporate social responsibility?

A) Donating to charity
B) Reducing employee benefits
C) Increasing executive compensation
D) Ignoring environmental concerns
E) Prioritizing shareholder value
Show Answer

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.

Q2MEDIUM

At what point are financial statements prepared?

A) After the adjusted trial balance
B) Before the adjusted trial balance
C) After the post-closing trial balance
D) Before the post-closing trial balance
E) During the journalizing process
Show Answer

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 B, would be premature as adjustments may not be accounted for.

Q3EASY

What is the purpose of disclosing contingent liabilities in the financial statements?

A) To recognize a liability
B) To recognize a gain
C) To provide information to investors and creditors
D) To ignore the contingency
E) To recognize a loss
Show Answer

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.

Q4MEDIUM

Which financial statement is used to evaluate a company's ability to generate cash?

A) Balance Sheet
B) Income Statement
C) Cash Flow Statement
D) Statement of Stockholders' Equity
E) Notes to the Financial Statements
Show Answer

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.

Q5EASY

What does the indirect method of calculating net cash provided by operating activities start with?

A) Net sales
B) Cost of goods sold
C) Net income
D) Total assets
E) Total liabilities
Show Answer

Answer: C — 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.

Ready to master Unit 1: The Accounting Cycle?

Get unlimited practice questions, AI tutoring, flashcards, and a personalized study plan. Start free — no credit card required.

Study Tips for Unit 1: The Accounting Cycle

  • Focus on understanding concepts, not memorizing facts — CLEP tests application
  • Practice with timed questions to build exam-day speed
  • Review explanations for wrong answers — they reveal common misconceptions
  • Use flashcards for key terms, practice questions for deeper understanding

CLEP® is a trademark registered by the College Board, which is not affiliated with, and does not endorse, this product.