CPA FAR Practice Test

CPA FAR Cash, Receivables & Inventory Practice Questions

Cash, Receivables & Inventory makes up 6 of every 50 questions on a Tigertest CPA FAR practice test. Here are 10 of the 24 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on the AICPA's 2026 FAR blueprint. Original multiple-choice questions; simulations not included. Not affiliated with the AICPA or NASBA.

1. 1. Which item qualifies as a cash equivalent?

   • A.Shares of a listed public company
   • B.A Treasury bill bought 60 days before maturity
   • C.A Treasury bill bought 6 months before maturity
   • D.A certificate of deposit due in one year

   Answer: B. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less to the holder. Maturity is measured from the date the holder buys it.

2. 2. A company has $85,000 in checking, $1,000 of petty cash, $40,000 in a money market fund, a $3,000 postdated check from a customer and a $20,000 nine-month certificate of deposit. Cash and cash equivalents are:

   • A.$146,000
   • B.$86,000
   • C.$129,000
   • D.$126,000

   Answer: D. $85,000 + $1,000 + $40,000 = $126,000. The postdated check is still a receivable, and the nine-month CD is a short-term investment, not a cash equivalent.

3. 3. The bank statement shows $52,400. Deposits in transit are $6,100, outstanding checks are $8,300, and the bank wrongly charged this account $200 for another customer's check. The adjusted bank balance is:

   • A.$50,400
   • B.$54,600
   • C.$50,000
   • D.$66,800

   Answer: A. $52,400 + $6,100 - $8,300 + $200 = $50,400. The bank's error is added back on the bank side because the bank must correct it.

4. 4. Which bank reconciliation item requires a journal entry on the company's books?

   • A.An outstanding check
   • B.A bank error on another account
   • C.A customer's NSF check
   • D.A deposit in transit

   Answer: C. Items the bank knows about but the company has not recorded, such as NSF checks and service charges, are booked by the company. Timing items and bank errors are fixed on the bank side.

5. 5. The general ledger shows cash of $31,800. The bank charged a $60 fee, returned a $900 NSF check and collected a $4,000 note (including interest) for the company. The adjusted book balance is:

   • A.$35,800
   • B.$30,840
   • C.$34,840
   • D.$36,760

   Answer: C. $31,800 - $60 - $900 + $4,000 = $34,840. Leaving out the collected note gives $30,840.

6. 6. Under ASC 326, the allowance for credit losses on trade receivables is based on:

   • A.Expected losses over the asset's life
   • B.Losses expected in the next year
   • C.Actual write-offs as they occur
   • D.Probable losses already incurred

   Answer: A. The current expected credit loss model records lifetime expected losses using past events, current conditions and reasonable forecasts. The incurred loss model it replaced waited for a probable loss.

7. 7. An aging shows receivables of $300,000 current (1% expected loss), $80,000 at 31 to 60 days (5%) and $20,000 over 60 days (25%). The allowance has a $4,500 credit balance before adjustment. Credit loss expense is:

   • A.$4,500
   • B.$12,000
   • C.$16,500
   • D.$7,500

   Answer: D. Required allowance: $3,000 + $4,000 + $5,000 = $12,000. Expense brings the existing $4,500 up to that: $12,000 - $4,500 = $7,500.

8. 8. Under the allowance method, writing off a specific uncollectible account causes:

   • A.An increase in net receivables
   • B.No change in net receivables
   • C.A decrease in net receivables
   • D.A rise in credit loss expense

   Answer: B. The write-off debits the allowance and credits accounts receivable by the same amount, so net receivables are unchanged. The expense was recognized when the allowance was built.

9. 9. A customer pays an account the company had written off last year under the allowance method. The company should:

   • A.Debit the allowance again
   • B.Reinstate it, then record the cash
   • C.Credit a gain on recovery
   • D.Credit sales revenue for the amount

   Answer: B. The write-off is reversed (debit receivables, credit the allowance), and then the collection is recorded as usual. No gain or revenue arises.

10. 10. A company sells 1,000 units at $50 each with a right of return and expects 4% to come back. Revenue recognized on the sale is:

    • A.$46,000
    • B.$49,000
    • C.$50,000
    • D.$48,000

    Answer: D. Under ASC 606, revenue excludes amounts expected to be refunded: $50,000 x 96% = $48,000. The $2,000 is a refund liability, with an asset for goods expected back.