Financial Accounting & Reporting Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Accounting & Reporting flashcards as text
A company using the indirect method starts with net income to prepare the operating section of the cash flow statement. Which adjustment is correct?
Answer: Add depreciation expense
Depreciation is a non-cash expense deducted in computing net income, so it must be added back under the indirect method to reconcile to cash from operations.
Under the equity method of accounting for investments, how does the investor record dividends received from the investee?
Answer: As a reduction of the Investment account
Under the equity method, dividends received reduce the carrying amount of the investment because they represent a return of capital, not income.
Which financial statement element is increased by a credit entry?
Answer: Revenues
Revenues are equity-related accounts with a normal credit balance, so they increase with a credit entry.
A manufacturing company's cost of goods sold includes all of the following EXCEPT:
Answer: Selling and distribution expenses
Selling and distribution expenses are period costs expensed immediately and are not included in the product cost that flows through inventory to COGS.
What is the purpose of a bank reconciliation?
Answer: To agree the bank balance and book balance to a corrected true cash balance
A bank reconciliation identifies and explains the differences between the company's book balance and the bank statement balance to arrive at the correct cash balance.
Under lower-of-cost-or-net-realizable-value (LCNRV) for inventory, net realizable value is defined as:
Answer: Estimated selling price less costs of completion and disposal
ASC 330 defines NRV as the estimated selling price in the ordinary course of business minus reasonably predictable costs of completion, disposal, and transportation.
Which of the following is a characteristic of the accrual basis of accounting?
Answer: Transactions are recorded when they occur regardless of cash flow timing
Under accrual accounting, revenues and expenses are recognized when earned or incurred, not necessarily when cash is exchanged.