Passing the CPA exam requires hundreds of hours of study time and the ability to digest a large amount of information. Some key concepts are a struggle for many students regardless of how long they study. Consequently, understanding these concepts can help you improve your score.
Review these 15 types of CPA exam questions to improve your test results. You may be surprised by what you don’t know!
Accrual Journal Entries
CPA exam section: FAR
Accrual accounting requires CPAs to use the matching principle, which states that revenue should be posted when earned and that expenses are booked when incurred to generate revenue. Some exam candidates may be confused by accrual journal entries, so here’s a brief rundown:
The goal of an accrual journal entry is to get the revenue or expense posted to the correct period (month or year). Furthermore, an accrual entry requires one income statement account and one balance sheet account. Consider the following:
Assume that a firm owes $1,000 in wages to employees on 12/31 and that payroll is paid to workers on January 5th of the following year. Here are the journal entries:
- (Dec. 31st) Debt accrued payroll $1,000, credit wages payable $1,000: This entry is used to post payroll in the period when the wages are earned. Accrued payroll is an expense account, and wages payable is a liability account. This accrual entry posts the expense in the correct year.
- (Jan. 5th) Debit wages payable $1,000, credit cash $1,000: This entry removes the liability balance for wages payable and reduces cash for the payment.
If you are working on an accrual accounting journal entry, keep this concept in mind.
CPA exam section: AUD
This is what you need to know about audit evidence as it relates to CPA exam questions:
Evidence from a third party is always more valuable than documentation provided by the company under audit. An independent third party, such as a customer or a vendor, does not have a direct financial stake in the outcome of the audit.
When auditing accounts receivable, for example, an auditor will send confirmations to customers to verify that funds are owed. Third party evidence is the best way to confirm that a sale was actually made.