CLEP Financial Accounting study guide
CLEP Financial Accounting · Work through your exam, one topic at a time.
The CLEP Financial Accounting exam is a standardized, multiple-choice credit-by-examination test that assesses the skills and concepts generally taught in a first-semester undergraduate financial accounting course. It is intended for students who have already acquired introductory accounting knowledge-through coursework, self-study, or work experience-and want to demonstrate that mastery to earn college credit rather than repeat the course. The CLEP Financial Accounting study guide has 5 sections and about 1,692 words.
01General Topics: The Accounting Framework and the Accounting Cycle
Financial accounting is a rules-based system for recording, summarizing, and reporting economic events to external users. Start with the accounting equation : Assets = Liabilities + Equity.
340 words, about 2 min02The Income Statement: Revenue, Expenses, and Profit Measurement
The income statement reports performance over a period using the accrual basis : revenues are recognized when the performance obligation is satisfied (earned), and expenses are matched to the revenues they helped generate (the matching principle ). Key subtotals to know: gross profit = net sales − cost of goods sold; operating income = gross profit − operating expenses; income before tax = operating income ± other revenues/gains and expenses/losses; net income = income before tax − income tax expense.
330 words, about 2 min03The Balance Sheet: Assets, Liabilities, and Equity
The balance sheet is a point-in-time snapshot: Assets = Liabilities + Equity. Assets are classified as current (converted to cash or used within one year or the operating cycle, whichever is longer) or long-term (property, plant, equipment; intangibles; long-term investments).
323 words, about 2 min04Statement of Cash Flows: Operating, Investing, and Financing
The statement of cash flows explains the change in cash over a period by classifying cash flows into three sections. Operating activities include cash from customers and payments to suppliers and employees-essentially the cash effects of transactions that enter net income.
364 words, about 2 min05Miscellaneous: Ratios, Analysis, and Ethical Judgment
This section tests the analytical and ethical tools that tie the statements together. Know the major liquidity ratios (current ratio = current assets ÷ current liabilities; quick ratio = (cash + marketable securities + receivables) ÷ current liabilities), solvency ratios (debt-to-equity; times interest earned = operating income ÷ interest expense), and profitability ratios (gross margin, net margin, return on assets, return on equity, earnings per share).
335 words, about 2 min