Free Contractors State License Board Law and Business Examination Practice Questions

Sample Practice Questions

Try these 10 sample questions from the Contractors State License Board Law and Business Examination practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1A sole proprietor's contracting business cannot pay a supplier. Who is generally personally responsible for that business debt?

   1. A.The qualifying employee alone
   2. B.The sole proprietor personallyCorrect answer: B
   3. C.The business trade name as a separate person
   4. D.The commercial general liability insurer automatically

   Explanation: The controlling source states “Sole Proprietorship”; The 2026 CSLB law book explains that a sole proprietorship does not separate the owner from business liabilities, so the proprietor is personally responsible.

   Reference: Cslb Law Reference 2026 — Section III, Business Organizations, Sole Proprietorship

2. 2Under cash-basis accounting, when is customer revenue recognized?

   1. A.When the customer receives an invoice
   2. B.When the contractor receives the cashCorrect answer: B
   3. C.When the revenue is earned under accrual accounting
   4. D.When the project reaches physical completion

   Explanation: The controlling source states “revenue is recognized when cash is received”; The CSLB reference states that cash-basis revenue is recognized when cash is received, not merely when a job is estimated or billed.

   Reference: Cslb Law Reference 2026 — Section III, Cash Basis of Accounting

3. 3A California contractor hires a new employee. By when must the hire generally be reported to the EDD New Employee Registry?

   1. A.Within 5 days
   2. B.Within 20 daysCorrect answer: B
   3. C.Within 60 days
   4. D.At year-end only

   Explanation: The controlling source states “within 20 days”; The EDD Employer's Guide requires employers to report newly hired or rehired employees within 20 days of the employee's start-of-work date.

   Reference: Cslb Law Reference 2026 — 2026 California Employer's Guide, New Employee Registry

4. 4A California drilling contractor hires one employee. What workers' compensation requirement generally applies?

   1. A.General-liability coverage alone satisfies the employment requirement
   2. B.The employer must secure workers' compensation coverageCorrect answer: B
   3. C.Unemployment-insurance registration substitutes for the coverage
   4. D.The contractor license bond substitutes for the coverage

   Explanation: The controlling source states “secure the payment of compensation”; California employers generally must secure workers' compensation insurance for employees; a license bond serves a different purpose and is not a substitute.

   Reference: Cslb Law Reference 2026 — Labor Code section 3700; Workers' Compensation Insurance

5. 5A fixed annual shop cost must be spread across expected projects. How should the estimator classify that cost?

   1. A.A direct material cost
   2. B.An indirect overhead costCorrect answer: B
   3. C.A variable field-labor cost
   4. D.A job-specific subcontract cost

   Explanation: The controlling source states “indirect costs”; The CSLB estimating material distinguishes job-specific direct costs from indirect expenses such as general overhead that must be allocated across work.

   Reference: Cslb Law Reference 2026 — Section III, Estimating and indirect costs

6. 6What wage standard generally applies to workers employed on a covered California public-works project?

   1. A.The applicable prevailing wage determinationCorrect answer: A
   2. B.Any rate chosen after the work
   3. C.Only the federal minimum regardless of determination
   4. D.Payment solely in equipment

   Explanation: The controlling source states “prevailing rate of per diem wages”; California public-works law requires payment of not less than the prevailing rate of per diem wages for work under covered public contracts.

   Reference: Dir Prevailing Wage Laws — California Labor Code section 1771 and prevailing wage requirements

7. 7What written safety program must a California contractor maintain for employees?

   1. A.An effective Injury and Illness Prevention ProgramCorrect answer: A
   2. B.A code of safe practices without the other required program elements
   3. C.An emergency action plan used as the entire safety program
   4. D.Tailgate-meeting rosters used as the entire safety program

   Explanation: The controlling source states “Injury and Illness Prevention Program”; Title 8 section 3203 requires every employer to establish, implement, and maintain an effective written Injury and Illness Prevention Program.

   Reference: Cal Osha Construction Pocket Guide — Title 8, section 3203, Injury and Illness Prevention Program

8. 8Two owners form a general partnership for drilling contracts. Unless their agreement or law provides otherwise, how is business responsibility generally shared?

   1. A.Each partner is responsible only for assigned projects
   2. B.Only the partner named as qualifier can bind the firm
   3. C.Partners share operation and may face partnership liabilitiesCorrect answer: C
   4. D.Partners receive corporation-style liability protection automatically

   Explanation: The controlling source states “share in the ownership and operation of the business”; CSLB describes general partnerships as using the resources of two or more individuals who share ownership and operation; the form does not provide corporate-style liability insulation.

   Reference: Cslb Law Reference 2026 — Section III, Business Organizations, General Partnership

9. 9A contractor has $90,000 in current assets and $60,000 in current liabilities. What is working capital?

   1. A.$30,000Correct answer: A
   2. B.$60,000
   3. C.$90,000
   4. D.$150,000

   Explanation: The controlling source states “total current assets and the total current liabilities”; CSLB defines working capital as total current assets minus total current liabilities: $90,000 − $60,000 = $30,000.

   Reference: Cslb Law Reference 2026 — Section III, Current Ratio and Working Capital

10. 10After paying more than $100 in wages during a calendar quarter, within how many days must a new California employer register with EDD?

    1. A.15 daysCorrect answer: A
    2. B.20 days
    3. C.30 days
    4. D.45 days

    Explanation: The 2026 California Employer's Guide requires registration “within 15 days” after an employer pays more than $100 in wages in a calendar quarter.

    Reference: 2025 California Employer's Guide (DE 44) Rev. 52 (4-26) — 2026 California Employer's Guide, section 1, Registering as an Employer