Instructions and covered skills
Read each question carefully before selecting an answer. Work from the stated assumptions and identify how an event flows through the linked financial statements. Keep track of whether an item affects net income, cash, or a non-cash balance sheet account. Do not rely on formatting cues or option order. Stay focused on the requested modeling relationship and avoid distractions. Turn off notifications and review your selections before submitting the test.
Key Areas
This test assesses the ability to build and review the links that make a three-statement financial model internally consistent. Candidates work with the income statement, balance sheet, and cash flow statement as connected outputs rather than isolated reports. The focus includes translating operating assumptions into revenue, expenses, net income, working capital, capital expenditures, debt balances, and ending cash.
Questions cover the accounting treatment of non-cash expenses, including depreciation and amortization, as well as the effect of changes in receivables, inventory, payables, and other operating balances on cash flow. Candidates should understand how the indirect cash flow statement begins with net income and adjusts for non-cash items and working-capital movements. They should also recognize the links between capital expenditure, fixed assets, depreciation, and investing cash flow.
Additional areas include debt schedule mechanics, interest expense, financing cash flows, retained earnings, dividends, share issuance, and balance sheet balancing procedures. Strong performance requires identifying whether an event affects earnings, cash, an asset, a liability, or equity, and determining the timing of each impact. The test also addresses common model checks, such as verifying that assets equal liabilities plus equity and that ending cash agrees across linked schedules.
Recommended Preparation
Prepare by tracing common business events through all three financial statements. Practice modeling changes in sales, gross margin, operating expenses, depreciation, working capital, capital expenditures, debt, and dividends. Review the indirect method of cash flow presentation and the signs used for operating, investing, and financing activities. Build or inspect a model with supporting schedules for fixed assets, debt, and retained earnings, then verify that the balance sheet check equals zero in each forecast period. Focus on understanding the financial logic behind each link instead of memorizing cell formulas.