Peregrine Accounting & Economics Exam 2026 Practice Questions &
Verified Answers Business Assessment Prep
Format: Multiple Choice
Target Audience: Business program assessment (typical for Peregrine exams)
Topics Covered: Accounting, Economics, Finance, Management, Marketing,
Business Law, Statistics, Strategy
Section 1: Financial Accounting (Questions 1–25)
1. Which financial statement reports a company's financial position at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Answer: C
,Rationale: The balance sheet provides a snapshot of a company's assets,
liabilities, and shareholders' equity on a specific date (e.g., December 31). In
contrast, the income statement and cash flow statement cover a period of time .
2. The accounting equation is:
A) Assets = Liabilities – Owners' Equity
B) Assets = Liabilities + Owners' Equity
C) Assets + Liabilities = Owners' Equity
D) Revenues – Expenses = Net Income
Answer: B
Rationale: The fundamental accounting equation (Assets = Liabilities + Equity)
must always balance. It is the foundation of double-entry bookkeeping .
3. Which of the following is classified as a current asset?
A) Building
B) Patent
C) Accounts Receivable
D) Long-term debt
,Answer: C
Rationale: Current assets are expected to be converted to cash or used within one
year. Accounts receivable, inventory, and cash are current assets. Buildings and
patents are long-term assets; long-term debt is a liability .
4. What is the term for the incorrect classification of expenses as assets in
accounting?
A) Misclassification
B) Depreciation
C) Understatement
D) Overstatement
Answer: A
Rationale: This describes misclassification (or capitalization error), where an
expense is improperly recorded as an asset. This inflates assets and understates
expenses, distorting financial health .
5. Depreciation is an example of:
A) A cash expense
B) A non-cash expense
, C) An asset
D) A liability
Answer: B
Rationale: Depreciation allocates the cost of a tangible asset over its useful life. It
reduces net income but does not involve an outflow of cash .
6. The difference between a company's current assets and current liabilities is
called:
A) Net income
B) Working capital
C) Retained earnings
D) Gross profit
Answer: B
Rationale: Working capital (Current Assets – Current Liabilities) measures a
company's short-term financial health and operational efficiency .
7. Which inventory valuation method generally results in the lowest net income
during periods of rising prices?
Verified Answers Business Assessment Prep
Format: Multiple Choice
Target Audience: Business program assessment (typical for Peregrine exams)
Topics Covered: Accounting, Economics, Finance, Management, Marketing,
Business Law, Statistics, Strategy
Section 1: Financial Accounting (Questions 1–25)
1. Which financial statement reports a company's financial position at a specific
point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Answer: C
,Rationale: The balance sheet provides a snapshot of a company's assets,
liabilities, and shareholders' equity on a specific date (e.g., December 31). In
contrast, the income statement and cash flow statement cover a period of time .
2. The accounting equation is:
A) Assets = Liabilities – Owners' Equity
B) Assets = Liabilities + Owners' Equity
C) Assets + Liabilities = Owners' Equity
D) Revenues – Expenses = Net Income
Answer: B
Rationale: The fundamental accounting equation (Assets = Liabilities + Equity)
must always balance. It is the foundation of double-entry bookkeeping .
3. Which of the following is classified as a current asset?
A) Building
B) Patent
C) Accounts Receivable
D) Long-term debt
,Answer: C
Rationale: Current assets are expected to be converted to cash or used within one
year. Accounts receivable, inventory, and cash are current assets. Buildings and
patents are long-term assets; long-term debt is a liability .
4. What is the term for the incorrect classification of expenses as assets in
accounting?
A) Misclassification
B) Depreciation
C) Understatement
D) Overstatement
Answer: A
Rationale: This describes misclassification (or capitalization error), where an
expense is improperly recorded as an asset. This inflates assets and understates
expenses, distorting financial health .
5. Depreciation is an example of:
A) A cash expense
B) A non-cash expense
, C) An asset
D) A liability
Answer: B
Rationale: Depreciation allocates the cost of a tangible asset over its useful life. It
reduces net income but does not involve an outflow of cash .
6. The difference between a company's current assets and current liabilities is
called:
A) Net income
B) Working capital
C) Retained earnings
D) Gross profit
Answer: B
Rationale: Working capital (Current Assets – Current Liabilities) measures a
company's short-term financial health and operational efficiency .
7. Which inventory valuation method generally results in the lowest net income
during periods of rising prices?
