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Monetary Current Assets and Liabilities: Comprehensive Guide for CPA Preparation

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When preparing for the CPA exam, understanding Monetary Current Assets and Monetary Current Liabilities is vital, as these are fundamental concepts in financial accounting. The classification of assets and liabilities into current categories reflects a company’s short-term financial health and liquidity. This guide will provide detailed explanations, simplified examples, journal entries, and practical CPA exam tips to help you excel. Monetary Current Assets: Deep Dive Monetary current assets are assets that are expected to be converted into cash or used up within one year or within a company's normal operating cycle, whichever is longer. These assets are considered liquid since they are easily convertible into cash. The key types include: 1. Cash and Cash Equivalents Cash and cash equivalents refer to all money available immediately, such as cash on hand, checking accounts, and short-term, highly liquid investments. These are considered the most liquid of all assets. Exampl...
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📘 30 CPA-Style MCQs on Matching of Revenues and Expenses

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  Q1. Under the matching principle, when should expenses be recognized? A. When paid B. When incurred C. When budgeted D. When invoice is received Q2. Which of the following is an example of an accrued expense? A. Prepaid rent B. Salaries payable C. Unearned revenue D. Cash dividends Q3. A company pays ₹1,20,000 for a 12-month insurance policy on April 1. What amount is expense on June 30? A. ₹30,000 B. ₹10,000 C. ₹40,000 D. ₹90,000 Q4. Which entry records revenue earned but not yet billed? A. Dr. Cash Cr. Revenue B. Dr. Accounts Receivable Cr. Revenue C. Dr. Deferred Revenue Cr. Revenue D. Dr. Revenue Cr. Unearned Revenue Q5. A company receives ₹6,00,000 for a 6-month magazine subscription. What is revenue recognized after 2 months? A. ₹6,00,000 B. ₹2,00,000 C. ₹1,00,000 D. ₹4,00,000 Q6. What is the impact of expensing a capital asset? A. Overstated net income B. Understated liabilities C. Understated assets D. Overstated assets Q7. Rent of ₹1,8...
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Matching of Revenues and Expenses: A CPA Goldmine Concept

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 Understanding the Matching Principle is your secret weapon for acing CPA questions on revenue and expense recognition. This comprehensive guide breaks it down simply, takes you from cash to accrual, covers all CPA-tested revenue topics, walks through journal entries and financial impacts, and finishes with 30 high-value CPA-style MCQs — each with 4 answer options and detailed explanations. 🌟 1. Expense Recognition: The Matching Principle 🎯 What is the Matching Principle? The Matching Principle states: “Record expenses in the same period as the revenues they help generate.” ✅ Real-Life Corporate Example: Amazon Amazon pays ₹5,00,000 in salaries in December for its operations that generate revenue in the same month. Even if the payment is made in January, the expense must be recorded in December. Journal Entry – December: Account Debit Credit Salaries Expense ₹5,00,000 Salaries Payable ₹5,00,000 Impact: Income Statement: ₹5,00,000 expense in December Balance Sheet: ₹5,0...
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30 Challenging Questions on Revenue Recognition (for CPA Exam)

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  1. A company has a contract to deliver 500 units of a product for $2,000 each. The contract includes a warranty for which the estimated cost is $100,000. How should the company allocate the total revenue between the product and warranty? a) Allocate $100,000 to the product and $900,000 to the warranty b) Allocate $900,000 to the product and $100,000 to the warranty c) Allocate $1,500,000 to the product and $500,000 to the warranty d) Allocate $1,200,000 to the product and $800,000 to the warranty 2. A company enters into a contract with a customer to deliver a product for $20,000. The customer can return the product within 30 days. The company estimates that 10% of the products will be returned. How much revenue should be recognized at the time of sale? a) $20,000 b) $18,000 c) $17,000 d) $15,000 3. A company sells a software license for $50,000. The customer is provided with technical support for one year, and the value of this support is $5,000. The software is deli...
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