INVESTMENT BANKING 400 -
ACCOUNTING EXAM QUESTIONS AND
ANSWERS GRADED A+ 2026
What is the primary purpose of US GAAP? - ANS In the US, the Securities and Exchange
Commission ("SEC") authorizes the Financial Accounting Standards Board ("FASB") to determine
the set of accounting rules followed by publicly traded companies. Under FASB, financial
statements are required to be prepared in accordance with US Generally Accepted Accounting
Principles ("US GAAP"). Through the standardization of financial reporting and ensuring all
financials are presented on a fair, consistent basis - the interests of investors and lenders are
protected.
What are the main sections of a 10-K? - ANS In a 10-K, you'll find the three core financial
statements, which are the income statement, cash flow statement, and balance sheet. There'll
also be a statement of shareholders' equity, a statement of comprehensive income, and
supplementary data and disclosures to accompany the financials.
What is the difference between the 10-K and 10-Q? - ANS - 10-K: A 10-K is the annual report
required to be filed with the SEC for any public company in the U.S. The report is comprehensive
and includes a full overview of the business operations, commentary on recent performance by
management, risk factors, disclosures on changes in accounting policies - and most importantly,
the three core financial statements with supplementary data.
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
1
,- 10-Q: A 10-Q refers to the quarterly report required to be filed with the SEC. Compared to the
10-K, this report is far more condensed in length and depth, with the focus being on the
quarterly financials with brief sections for MD&A and supplementary disclosures.
- Additional Differences: A few more differences are 10-Ks are required to be audited by an
independent accounting firm, but 10-Qs are only reviewed by CPAs and left unaudited. 10-Ks
must also be filed ~60-90 days after the fiscal year ends, whereas 10-Qs must be submitted ~40-
45 days after the quarter ends.
Walk me through the three financial statements. - ANS 1. Income Statement ("IS"): The
income statement shows a company's profitability over a specified period, typically quarterly
and annually. The beginning line item is revenue and upon deducting various costs and
expenses, the ending line item is net income.
2. Balance Sheet ("BS"): The balance sheet is a snapshot of a company's resources (assets) and
sources of funding (liabilities and shareholders' equity) at a specific point in time, such as the
end of a quarter or fiscal year.
3. Cash Flow Statement ("CFS"): Under the indirect approach, the starting line item is net
income, which will be adjusted for non-cash items such as D&A and changes in working capital
to arrive at cash from operations. Cash from investing and financing activities are then added to
cash from operations to arrive at the net change in cash, which represents the actual cash
inflows/(outflows) in a given period.
Walk me through the income statement - ANS The income statement shows a company's
accrual-based profitability over a specified time period and facilitates the analysis of its
historical growth and operational performance. The table below lists the major income and
expense components of the income statement:
Walk me through the balance sheet - ANS The balance sheet shows a company's assets,
liabilities, and equity sections at a specific point in time. The fundamental accounting equation
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
2
,is: Assets = Liabilities + Shareholders' Equity. The assets belonging to a company must have been
funded somehow, so assets will always be equal to the sum of liabilities and equity.
- Assets Section: Assets are organized in the order of liquidity, with "Current Assets" being
assets that can be converted into cash within a year, such as cash itself, along with marketable
securities, accounts receivable, prepaid expenses, and inventories. "Long-Term Assets" include
property, plant, and equipment (PP&E), intangible assets, goodwill, and long-term investments.
- Liabilities Section: Liabilities are listed in the order of how close they're to coming due.
"Current Liabilities" include accounts payable, accrued expenses, and short-term debt, while
"Long-Term Liabilities" include items such as long-term debt, deferred revenue, and deferred
income taxes.
- Shareholders' Equity Section: The equity section consists of common stock, additional paid-in
capital (APIC), treasury stock, and retained earnings
Could you give further context on what assets, liabilities, and equity each represent? - ANS -
Assets: Assets are resources with economic value that can be sold for money or bring positive
monetary benefits in the future. For example, cash and marketable securities are a store of
monetary value that can be invested to earn interest/returns, accounts receivable are payments
due from customers, and PP&E is used to generate cash flows in the future - all representing
inflows of cash.
- Liabilities: Liabilities are unsettled obligations to another party in the future and represent the
external sources of capital from third-parties, which help fund the company's assets (e.g., debt
capital, payments owed to suppliers/vendors). Unlike assets, liabilities represent future outflows
of cash.
- Equity: Equity is the capital invested in the business and represents the internal sources of
capital that helped fund its assets. The providers of capital could range from being self-funded
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
3
, to outside institutional investors. In addition, the accumulated net profits over time will be
shown here as "Retained Earnings."
What are the typical line items you might find on the balance sheet? - ANS
Walk me through the cash flow statement. - ANS There are two methods by which cash flow
statements are organized: Direct and Indirect.
The more common approach is the indirect method, whereby the cash flow statement is broken
out into three sections:
1. Cash from Operations: The cash from operations section starts with net income and adds
back non-cash expenses such as depreciation & amortization and stock-based compensation,
and then makes adjustments for changes in working capital.
2. Cash from Investing: Next, the cash from investing section accounts for capital expenditures
(typically the largest outflow), followed by any business acquisitions or divestitures.
3. Cash from Financing: In the third section, cash from financing shows the net cash impact of
raising capital from issuances of equity or debt, net of cash used for share repurchases, and
repayments of debt. The cash outflows from the payout of dividends to shareholders will be
reflected here as well.
Together, the sum of the three sections will be the net change in cash for the period. This figure
will then be added to the beginning-of-period cash balance to arrive at the ending cash balance.
How are the three financial statements connected? - ANS - IS ↔ CFS: The cash flow
statement is connected to the income statement through net income, as net income is the
starting line on the cash flow statement.
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
4
ACCOUNTING EXAM QUESTIONS AND
ANSWERS GRADED A+ 2026
What is the primary purpose of US GAAP? - ANS In the US, the Securities and Exchange
Commission ("SEC") authorizes the Financial Accounting Standards Board ("FASB") to determine
the set of accounting rules followed by publicly traded companies. Under FASB, financial
statements are required to be prepared in accordance with US Generally Accepted Accounting
Principles ("US GAAP"). Through the standardization of financial reporting and ensuring all
financials are presented on a fair, consistent basis - the interests of investors and lenders are
protected.
What are the main sections of a 10-K? - ANS In a 10-K, you'll find the three core financial
statements, which are the income statement, cash flow statement, and balance sheet. There'll
also be a statement of shareholders' equity, a statement of comprehensive income, and
supplementary data and disclosures to accompany the financials.
What is the difference between the 10-K and 10-Q? - ANS - 10-K: A 10-K is the annual report
required to be filed with the SEC for any public company in the U.S. The report is comprehensive
and includes a full overview of the business operations, commentary on recent performance by
management, risk factors, disclosures on changes in accounting policies - and most importantly,
the three core financial statements with supplementary data.
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
1
,- 10-Q: A 10-Q refers to the quarterly report required to be filed with the SEC. Compared to the
10-K, this report is far more condensed in length and depth, with the focus being on the
quarterly financials with brief sections for MD&A and supplementary disclosures.
- Additional Differences: A few more differences are 10-Ks are required to be audited by an
independent accounting firm, but 10-Qs are only reviewed by CPAs and left unaudited. 10-Ks
must also be filed ~60-90 days after the fiscal year ends, whereas 10-Qs must be submitted ~40-
45 days after the quarter ends.
Walk me through the three financial statements. - ANS 1. Income Statement ("IS"): The
income statement shows a company's profitability over a specified period, typically quarterly
and annually. The beginning line item is revenue and upon deducting various costs and
expenses, the ending line item is net income.
2. Balance Sheet ("BS"): The balance sheet is a snapshot of a company's resources (assets) and
sources of funding (liabilities and shareholders' equity) at a specific point in time, such as the
end of a quarter or fiscal year.
3. Cash Flow Statement ("CFS"): Under the indirect approach, the starting line item is net
income, which will be adjusted for non-cash items such as D&A and changes in working capital
to arrive at cash from operations. Cash from investing and financing activities are then added to
cash from operations to arrive at the net change in cash, which represents the actual cash
inflows/(outflows) in a given period.
Walk me through the income statement - ANS The income statement shows a company's
accrual-based profitability over a specified time period and facilitates the analysis of its
historical growth and operational performance. The table below lists the major income and
expense components of the income statement:
Walk me through the balance sheet - ANS The balance sheet shows a company's assets,
liabilities, and equity sections at a specific point in time. The fundamental accounting equation
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
2
,is: Assets = Liabilities + Shareholders' Equity. The assets belonging to a company must have been
funded somehow, so assets will always be equal to the sum of liabilities and equity.
- Assets Section: Assets are organized in the order of liquidity, with "Current Assets" being
assets that can be converted into cash within a year, such as cash itself, along with marketable
securities, accounts receivable, prepaid expenses, and inventories. "Long-Term Assets" include
property, plant, and equipment (PP&E), intangible assets, goodwill, and long-term investments.
- Liabilities Section: Liabilities are listed in the order of how close they're to coming due.
"Current Liabilities" include accounts payable, accrued expenses, and short-term debt, while
"Long-Term Liabilities" include items such as long-term debt, deferred revenue, and deferred
income taxes.
- Shareholders' Equity Section: The equity section consists of common stock, additional paid-in
capital (APIC), treasury stock, and retained earnings
Could you give further context on what assets, liabilities, and equity each represent? - ANS -
Assets: Assets are resources with economic value that can be sold for money or bring positive
monetary benefits in the future. For example, cash and marketable securities are a store of
monetary value that can be invested to earn interest/returns, accounts receivable are payments
due from customers, and PP&E is used to generate cash flows in the future - all representing
inflows of cash.
- Liabilities: Liabilities are unsettled obligations to another party in the future and represent the
external sources of capital from third-parties, which help fund the company's assets (e.g., debt
capital, payments owed to suppliers/vendors). Unlike assets, liabilities represent future outflows
of cash.
- Equity: Equity is the capital invested in the business and represents the internal sources of
capital that helped fund its assets. The providers of capital could range from being self-funded
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
3
, to outside institutional investors. In addition, the accumulated net profits over time will be
shown here as "Retained Earnings."
What are the typical line items you might find on the balance sheet? - ANS
Walk me through the cash flow statement. - ANS There are two methods by which cash flow
statements are organized: Direct and Indirect.
The more common approach is the indirect method, whereby the cash flow statement is broken
out into three sections:
1. Cash from Operations: The cash from operations section starts with net income and adds
back non-cash expenses such as depreciation & amortization and stock-based compensation,
and then makes adjustments for changes in working capital.
2. Cash from Investing: Next, the cash from investing section accounts for capital expenditures
(typically the largest outflow), followed by any business acquisitions or divestitures.
3. Cash from Financing: In the third section, cash from financing shows the net cash impact of
raising capital from issuances of equity or debt, net of cash used for share repurchases, and
repayments of debt. The cash outflows from the payout of dividends to shareholders will be
reflected here as well.
Together, the sum of the three sections will be the net change in cash for the period. This figure
will then be added to the beginning-of-period cash balance to arrive at the ending cash balance.
How are the three financial statements connected? - ANS - IS ↔ CFS: The cash flow
statement is connected to the income statement through net income, as net income is the
starting line on the cash flow statement.
@COPYRIGHT 2026/2027 ALL RIGHTS RESERVED
4
