HBS CORE EXAM QUESTIONS AND
ANSWERS (GRADED A+)
What Accounting Principle Does the Following Represent:
Real Estate prices in Orderville have increased dramatically over the last five years.
Although the land under Chad's office building is currently believed to be worth
$500,000, it is recorded at $250,000 because that is the price he paid for it. -
ANSWER-Historical Cost Principle
What is the Accounting Equation? - ANSWER-Assets = Liabilities + Equity
What Accounting Principle Does the Following Represent:
AQG Industries purchases $20,000 of product on credit from RSI Manufacturing.
AQG records the purchase as an increase in inventory and an increase in accounts
payable. AQG feels that they will be able to realize the value from the inventory and
settle the obligation to RSI in the weeks to come. - ANSWER-"Going Concern"
Concept
A "note payable for a bank loan" is an example of a... - ANSWER-Liability
The principle of Conservatism, says that a company should choose measurement
methods that anticipate and record _____________ but don't anticipate and record
_____________. - ANSWER-future losses; future gains
What Accounting Principle Does the Following Represent:
A microfinance institution has been relying on government collateral subsidies to
finance start-ups in rural areas. However, the government has cut the program
recently. The company reports this situation in its financial statements as this might
affect the decisions of stakeholders. - ANSWER-Materiality
Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type
of account? - ANSWER-Expense Account
Sales Revenue & Deferred Revenue decrease with: Debit or Credit? - ANSWER-
Debit
Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a Credit
- ANSWER-Decrease
These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent - ANSWER-Debit
The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue - ANSWER-Credit
, True or False: Transactions are only recorded when there is an exchange of cash -
ANSWER-False: This is true for Cash Basis Accounting, but not for Accrual
Accounting.
The income statement reflects a company's: - ANSWER-Financial performance over
a given period of time
What represents the net income/(loss) for the year? - ANSWER-The difference
between the revenues/gains and expenses/losses.
Income Statement:
Examples of Permanent Accounts - ANSWER--CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
Income Statement:
Examples of Temporary Accounts - ANSWER--COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
Nominal Accounts - ANSWER-Accounts that are reset to zero at the end of each
accounting period. Nominal accounts include all revenue and expense accounts, and
may also be referred to as temporary accounts or Income Statement accounts. The
net balance of nominal accounts is transferred to retained earnings at the end of
each accounting period.
Real Accounts - ANSWER-Accounts which contain cumulative balances since the
inception of the business. The balances in these accounts flow from one accounting
period to the next. Real accounts include all asset, liability, and owners' equity
accounts and may also be referred to as permanent accounts or Balance Sheet
accounts.
What was Dark Horse Corp.'s gross profit for 2015? - ANSWER-Gross Profit is equal
to Sales Revenue minus Cost of Goods Sold, in this case $1,600,000 - $640,000 =
$960,000.
The Cost of Goods Sold of $640,000 is found by multiplying $1,600,000 by 40%.
Gross Profit - ANSWER-The amount by which the revenue exceeds the cost of
goods sold (or cost of sales).
Gross Profit = Net Sales - COGS
Recognizing the revenue for inventory sold is an example of what type of
transaction? - ANSWER-explicit transaction
ANSWERS (GRADED A+)
What Accounting Principle Does the Following Represent:
Real Estate prices in Orderville have increased dramatically over the last five years.
Although the land under Chad's office building is currently believed to be worth
$500,000, it is recorded at $250,000 because that is the price he paid for it. -
ANSWER-Historical Cost Principle
What is the Accounting Equation? - ANSWER-Assets = Liabilities + Equity
What Accounting Principle Does the Following Represent:
AQG Industries purchases $20,000 of product on credit from RSI Manufacturing.
AQG records the purchase as an increase in inventory and an increase in accounts
payable. AQG feels that they will be able to realize the value from the inventory and
settle the obligation to RSI in the weeks to come. - ANSWER-"Going Concern"
Concept
A "note payable for a bank loan" is an example of a... - ANSWER-Liability
The principle of Conservatism, says that a company should choose measurement
methods that anticipate and record _____________ but don't anticipate and record
_____________. - ANSWER-future losses; future gains
What Accounting Principle Does the Following Represent:
A microfinance institution has been relying on government collateral subsidies to
finance start-ups in rural areas. However, the government has cut the program
recently. The company reports this situation in its financial statements as this might
affect the decisions of stakeholders. - ANSWER-Materiality
Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type
of account? - ANSWER-Expense Account
Sales Revenue & Deferred Revenue decrease with: Debit or Credit? - ANSWER-
Debit
Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a Credit
- ANSWER-Decrease
These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent - ANSWER-Debit
The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue - ANSWER-Credit
, True or False: Transactions are only recorded when there is an exchange of cash -
ANSWER-False: This is true for Cash Basis Accounting, but not for Accrual
Accounting.
The income statement reflects a company's: - ANSWER-Financial performance over
a given period of time
What represents the net income/(loss) for the year? - ANSWER-The difference
between the revenues/gains and expenses/losses.
Income Statement:
Examples of Permanent Accounts - ANSWER--CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
Income Statement:
Examples of Temporary Accounts - ANSWER--COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
Nominal Accounts - ANSWER-Accounts that are reset to zero at the end of each
accounting period. Nominal accounts include all revenue and expense accounts, and
may also be referred to as temporary accounts or Income Statement accounts. The
net balance of nominal accounts is transferred to retained earnings at the end of
each accounting period.
Real Accounts - ANSWER-Accounts which contain cumulative balances since the
inception of the business. The balances in these accounts flow from one accounting
period to the next. Real accounts include all asset, liability, and owners' equity
accounts and may also be referred to as permanent accounts or Balance Sheet
accounts.
What was Dark Horse Corp.'s gross profit for 2015? - ANSWER-Gross Profit is equal
to Sales Revenue minus Cost of Goods Sold, in this case $1,600,000 - $640,000 =
$960,000.
The Cost of Goods Sold of $640,000 is found by multiplying $1,600,000 by 40%.
Gross Profit - ANSWER-The amount by which the revenue exceeds the cost of
goods sold (or cost of sales).
Gross Profit = Net Sales - COGS
Recognizing the revenue for inventory sold is an example of what type of
transaction? - ANSWER-explicit transaction
