CBP CBP Business Finance and Accounting 1 — Questions and Answers
Question 1: Which financial statement shows a company's revenues and expenses over a specific period?
- Balance Sheet
- Income Statement (Correct answer)
- Cash Flow Statement
- Statement of Retained Earnings
Correct answer: Income Statement
The income statement (profit and loss statement) summarizes revenues and expenses over a reporting period to show net profit or loss.
Question 2: What does the term 'accounts payable' refer to in business accounting?
- Money owed to the company by customers
- Money the company owes to suppliers or vendors (Correct answer)
- Employee salaries that have been paid
- Long-term debt obligations
Correct answer: Money the company owes to suppliers or vendors
Accounts payable represents short-term liabilities — amounts a company owes to its suppliers and vendors for goods or services received.
Question 3: What is the formula for calculating gross profit?
- Revenue minus operating expenses
- Revenue minus cost of goods sold (Correct answer)
- Net income plus taxes
- Total assets minus total liabilities
Correct answer: Revenue minus cost of goods sold
Gross profit equals revenue minus the cost of goods sold (COGS), showing profitability before operating expenses are deducted.
Question 4: Which ratio measures a company's ability to pay short-term obligations using its most liquid assets?
- Debt-to-equity ratio
- Current ratio
- Quick ratio (Correct answer)
- Return on equity
Correct answer: Quick ratio
The quick ratio (acid-test ratio) measures short-term liquidity by comparing cash, marketable securities, and receivables to current liabilities, excluding inventory.
Question 5: What is 'depreciation' in the context of business accounting?
- An increase in the value of an asset over time
- The allocation of an asset's cost over its useful life (Correct answer)
- A one-time write-off of bad debt
- A tax penalty for late filings
Correct answer: The allocation of an asset's cost over its useful life
Depreciation systematically allocates the cost of a tangible asset over its useful life, reducing taxable income and reflecting the asset's decreasing value.
Question 6: A company has total assets of $500,000 and total liabilities of $200,000. What is the owner's equity?
- $700,000
- $300,000 (Correct answer)
- $200,000
- $500,000
Correct answer: $300,000
Owner's equity equals total assets minus total liabilities; $500,000 - $200,000 = $300,000, per the fundamental accounting equation.
CBP CBP Business Finance and Accounting 1
Which financial statement shows a company's revenues and expenses over a specific period?