DSST Prep Financial Accounting Exam Questions & Answers 2026 (1–10)

Question 1

Which of the following is classified as a current asset on the balance sheet?

TheoryPractice · Accepted 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.

Question 2

On the balance sheet, total assets must equal

TheoryPractice · Accepted Answer

Total liabilities plus stockholders' equity. The fundamental accounting equation states that Assets = Liabilities + Stockholders' Equity. This equation must always balance.

Question 3

Which financial statement shows a company's financial position at a specific point in time?

TheoryPractice · Accepted 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.

Question 4

Net income from the income statement flows directly into which other financial statement?

TheoryPractice · Accepted 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.

Question 5

The current ratio is calculated as

TheoryPractice · Accepted 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.

Question 6

Which of the following ratios is used to measure a company's liquidity?

TheoryPractice · Accepted 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.

Question 7

The statement of cash flows is divided into which three main sections?

TheoryPractice · Accepted 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).

Question 8

Under the indirect method of preparing the statement of cash flows, depreciation expense is

TheoryPractice · Accepted 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.

Question 9

The debt-to-equity ratio is used to measure a company's

TheoryPractice · Accepted 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.

Question 10

Which of the following is an example of a profitability ratio?

TheoryPractice · Accepted Answer

Return on equity. Return on equity (ROE) measures how effectively a company generates profit from shareholders' investments, making it a key profitability ratio.

DSST Prep Financial Accounting Exam Questions & Answers 2026 (1–10)

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