CFE

Question 1

Assets = Liabilities + Owners Equity

Answer 1

What is the accounting equation?

Question 2

The system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results for an enterprises decision-makers and other interested parties.

Answer 2

What is accounting

Question 3

A resource owned by an entity that has economic value and will provide a future benefit.

Answer 3

What is an asset

Question 4

Cash, accounts receivable, inventory, property, equipment, intangible items (patents, licenses, and trade marks)

Answer 4

Typical asset accounts

Question 5

The obligations of an entity or outsiders claims against a company’s assets

Answer 5

What are liabilities

Question 6

Accounts payable
Notes payable
Interest payable
Long term debt

Answer 6

Typical liability accounts

Question 7

The investment of a company’s owners plus accumulated profits
(Revenues minus expenses)

Answer 7

What is owners equity

Question 8

What type of entry goes on the left side of an account?

Answer 8

Debits

Question 9

What type of entry goes on the right side of an account?

Answer 9

Credits

Question 10

What type of accounts are increased by debits and decreased by credits?

Answer 10

Assets
Expenses

Question 11

What types of accounts are increased by credits and decreased by debits?

Answer 11

Revenue
Owners equity
Liabilities

Question 12

An accounting record consisting of a debit side and a credit side that shows the detailed components of a particular transaction?

Answer 12

A journal entry

Question 13

2 primary methods of accounting

Answer 13

Cash basis
Accrual basis

Question 14

Presentations of financial data and accompanying notes prepared in conformity with generally accepted accounting principles?

Answer 14

What are financial statements

Question 15

A financial statement that provides insight into a company’s financial position at a specific point in time

Answer 15

Balance sheet or statement of financial position

Question 16

Assets
Owners equity
Liabilities
Are typically found on a?

Answer 16

Balance sheet

Question 17

A _______ _______ shows how much profit or loss a company earned over a period of time

Answer 17

Income statement or
Statement of profit or loss and other comprehensive income

Question 18

Net sales minus cost of goods sold?

Answer 18

What is gross profit/gross margin

Question 19

Gross profit minus operating expenses

Answer 19

What is net profit?

Question 20

Total sales during an accounting period before any deductions are made

Answer 20

What is gross revenue

Question 21

Net sales revenue
Cost of goods sold
Gross profit
Operating expenses
Net profit/income or net loss

Answer 21

Items typically found on an income statement

Question 22

A financial statement that acts as the connecting link between the income statement and balance sheet by detailing the change in owners equity over a period

Answer 22

What is the statement of changes in owners equity (or statement of retained earnings)

Question 23

A ____ ____ ____ _____ reports a company’s sources and uses of cash during the accounting period

Answer 23

What is the statement of cash flows

Question 24

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Answer 24

3 categories on a statement of cash flows

Question 25

Generally accepted accounting principles, which are the rules by which a company’s financial transactions are recorded into their appropriate account classifications.

Answer 25

What is GAAP

Question 26

International financial reporting standards, which is one form of GAAP and is intended to be used as a uniform set of globally accepted accounting standards

Answer 26

What is IFRS

Question 27

Any information that might affect a decision made by a user of the financial statements is considered relevant

Answer 27

What is the qualitative characteristic of relevance under IFRS

Question 28

Expenses are recorded in the same accounting period as the revenues they helped generate

Answer 28

What is the matching principle

Question 29

Comparability enables users to understand and base their decisions on comparisons between different entities and on similar information from a single entity for another reporting period

Answer 29

What is the qualitative characteristic of comparability under IFRS

Question 30

Verifiability helps assure users that information is accurate and faithfully represents the entity’s financial position

Answer 30

What is the qualitative characteristic of verifiability under IFRS

Question 31

Providing information to decision- makers in time to be capable of influencing their decisions

Answer 31

What is the qualitative characteristics of timeliness under IFRS

Question 32

What is the qualitative characteristic of understandability under IFRS

Answer 32

Enough information should be provided about the organization’s economic events so that a reasonable financial statement user can understand what occurred

Question 33

Every effort shall be made to ensure that the financial information presented is complete, neutral, and free from error

Answer 33

What is the qualitative characteristic of faithful representation under IFRS

Question 34

When should an item that meets the definition of an element be recognized

Answer 34

There is probable future economic benefit that will flow to or from the entity The item has a cost or value that can be measured with reliability

Question 35

The underlying assumption that the life of the entity will be long enough to fulfill its financial and legal obligations; any evidence to the contrary must be reported in the entity’s financial statements

Answer 35

What is the going concern principle

Question 36

When is departure from GAAP acceptable?

Answer 36

— There is concern that assets or income would be overstated and expenses or liabilities would be understated — Common practice in the industry — transaction is better reflected a different way — following GAAP will produce misleading financial statements and the departure is properly disclosed

Question 37

An expense recorded to reflect the expected decline of a company’s physical property from normal use; it is recorded on the income statement as an operating expense.

Answer 37

A depreciation expense

Question 38

An expense taken for a decline in value of the intangible property; it is recorded on the income statement as an operating expense.

Answer 38

An amortization expense

Question 39

An amount that represents the cumulative expense recorded to reflect the expected decline of a company’s physical property from normal use; it is recorded on the balance sheet as an offset to the company’s fixed assets.

Answer 39

Accumulated depreciation

Question 40

An amount that represents the cumulative decline in value of the company’s intangible property; it is recorded on the balance sheet as an offset to the company’s intangible assets.

Answer 40

Accumulated amortization

Question 41

The deliberate misrepresentation of the financial condition of an enterprise through the intentional misstatement or omission of amounts or disclosures in the financial statements to deceive users

Answer 41

Financial statement fraud

Question 42

What is the typical effect of fraud on the financial statements

Answer 42

Overstated assets and revenues Understated liabilities and expenses

Question 43

Fictitious revenues Timing difference Improper asset valuations Concealed liabilities and expenses Improper disclosures

Answer 43

5 Classifications of financial statement fraud schemes

Question 44

Recording revenue from the sale of goods or services that did not occur involving either fake customers or legitimate customers.

Answer 44

Fictitious revenue scheme

Question 45

Recording of revenues or expenses in improper periods.

Answer 45

Timing difference scheme

Question 46

Moving revenues or expenses between 1 period and the next to increase or decrease earnings as desired and give the illusion of a more stable enterprise.

Answer 46

Income smoothing

Question 47

Inventory valuation Accounts receivable Business combinations Fixed assets

Answer 47

4 classifications of improper asset valuation schemes

Question 48

According to GAAP and IFRS how should inventory be valued

Answer 48

Lower of cost, market value, or net realized value

Question 49

— Creating fictitious receivables — Failing to properly account for uncollectible customer accounts

Answer 49

2 ways accounts receivable are commonly manipulated

Question 50

The amount of accounts receivable that the entity does not expect to collect

Answer 50

Bad debt expense

Question 51

What does it mean to improperly capitalize an expenditure

Answer 51

To add the cost of the expenditure to an asset account rather than properly recording it as an expense

Question 52

An increase in assets (and therefore a stronger balance sheet) and a decrease in expenses (and therefore a higher net income) for the period

Answer 52

The effect of improperly capitalizing an expenditure

Question 53

— Contingent liabilities — Subsequent events — Management fraud — Related-party transactions — Accounting changes

Answer 53

5 common types of improper financial statement disclosures

Question 54

A potential obligation that will materialize only if certain events occur in the future

Answer 54

Contingent liability

Question 55

— Changes in accounting principles — Changes in accounting estimates — Changes in reporting entities

Answer 55

3 types of accounting changes that must be disclosed