TheoryDSST Prep Financial Accounting Practice Questions
Free DSST Prep Financial Accounting practice questions with answers and plain-English explanations. Browse the PDF, video and online mock test.
DSST Prep Financial Accounting Questions
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Q1Which of the following is classified as a current asset on the balance sheet?
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✓ Correct answer: Accounts receivable
Accounts receivable represents amounts owed to the company by customers and is expected to be collected within one year, making it a current asset.
Q2On the balance sheet, total assets must equal
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✓ Correct answer: Total liabilities plus stockholders' equity
The fundamental accounting equation states that Assets = Liabilities + Stockholders' Equity. This equation must always balance.
Q3Which financial statement shows a company's financial position at a specific point in time?
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✓ Correct answer: Balance sheet
The balance sheet presents a snapshot of assets, liabilities, and equity at a specific date, showing the company's financial position at that moment.
Q4Net income from the income statement flows directly into which other financial statement?
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✓ Correct answer: Statement of retained earnings
Net income from the income statement is added to beginning retained earnings on the statement of retained earnings (or statement of owner's equity) to calculate ending retained earnings.
Q5The current ratio is calculated as
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✓ Correct answer: Current assets divided by current liabilities
The current ratio is a liquidity measure calculated by dividing current assets by current liabilities. It indicates the company's ability to pay short-term obligations.
Q6Which of the following ratios is used to measure a company's liquidity?
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✓ Correct answer: Quick ratio
The quick ratio (acid-test ratio) measures a company's ability to meet short-term obligations using its most liquid assets, making it a liquidity ratio.
Q7The statement of cash flows is divided into which three main sections?
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✓ Correct answer: Operating, investing, and financing activities
The statement of cash flows categorizes cash flows into operating activities (day-to-day business), investing activities (long-term assets), and financing activities (debt and equity).
Q8Under the indirect method of preparing the statement of cash flows, depreciation expense is
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✓ Correct answer: Added back to net income
Depreciation is a non-cash expense that reduced net income but did not use cash. Therefore, it is added back to net income to calculate cash from operating activities.
Q9The debt-to-equity ratio is used to measure a company's
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✓ Correct answer: Solvency
The debt-to-equity ratio compares total liabilities to stockholders' equity, measuring the degree of financial leverage and long-term solvency of the company.
Q10Which of the following is an example of a profitability ratio?
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✓ Correct answer: Return on equity
Return on equity (ROE) measures how effectively a company generates profit from shareholders' investments, making it a key profitability ratio.
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