HBS CORE – ACCOUNTING EXAM QUESTIONS AND ANSWERS 100% CORRECT

HBS CORE – ACCOUNTING EXAM
QUESTIONS AND ANSWERS 100%
CORRECT
Fundamental Accounting Equation - ANSWER-Assets = Liabilities + Owner's Equity

Asset - Definition - ANSWER-Resources owned by a business

Liabilities - ANSWER-Obligations to pay a third party

Owner's Equity - ANSWER-Contributions from the owners' of a business. Assets -
Liabilities

Differences between Liabilities and Owner's Equity - ANSWER-Owners have the
ability to make decisions about how the business operates. Lenders/suppliers do not

What increases owner's equity? - ANSWER-Profits

Matching Principle - ANSWER-Expenses should be recognized in the same period in
which the related revenue is recognized rather than when the related cash is paid

Components of the Accrual Accounting Method (3) - ANSWER-Realization Principle.
Matching Principle. Going Concern

Realization Principle - ANSWER-Revenue can only be recognized when the revenue
is both earned and realized/realizable

Going Concern - ANSWER-A company is considered to be a going concern if the
entity is expected to remain in operation and be able to satisfy all commitments and
obligations and realize the benefits and values of all assets for the indefinite future. If
there is evidence to the contrary, the business may no longer be considered a going
concern

If a business is labeled as a going concern, is that business healthy or unhealthy?
Why? - ANSWER-Healthy. Going concern means its expected to remain in operation
and satisfy all commitments/obligations

Is deferred revenue an asset or liability? - ANSWER-Liability

Deferred Revenue - Definition - ANSWER-Liability that represents the obligation to
provide future goods/services

Conservatism - ANSWER-For revenues and gains it means recording them when
they are reasonably certain but for expenses and losses it means recording them
when they are reasonably possible. For assets it means recording the lower
valuation while for liabilities it means recording the higher possible valuation.

, Historical Cost Principle - ANSWER-Transactions are recorded at the cost that
existed when the transaction occurred.

Valuating Assets under Historical Cost Principle - ANSWER-Financial value of
assets is shown at historical cost, rather than current market value. Example - Land
appreciation

Entity Concept - ANSWER-A business is a separately identifiable entity. Therefore,
accounts of a business should be completely separate from those of owners of the
business

Money Measurement Principle - ANSWER-Only values that can be measured in
monetary terms should be recorded in financial accounting records. Intangible assets
will not be recorded

Is brand recognition/brand equity recorded as an asset on financial statements? -
ANSWER-No - brand equity is an intangible asset

Categorize: Cash - ANSWER-Asset

Categorize: Accounts Receivable - ANSWER-Asset

Categorize: Notes Receivable - ANSWER-Asset

Categorize: Interest Receivable - ANSWER-Asset

Categorize: Inventory - ANSWER-Asset

Categorize: Investments - ANSWER-Asset

Categorize: Fixed Assets - ANSWER-Asset

Categorize: Property, Plant & Equipment - ANSWER-Asset

Categorize: Prepaid Insurance - ANSWER-Asset

Categorize: Prepaid Rent - ANSWER-Asset

Categorize: Other Prepaid Expenses - ANSWER-Asset

Categorize: Goodwill - ANSWER-Asset

Categorize: Other Intangible Assets - ANSWER-Asset

Categorize: Deferred Tax Asset - ANSWER-Asset

Categorize: Accounts Payable - ANSWER-Liability

Categorize: Interest Payable - ANSWER-Liability