HBS CORE EXAM QUESTIONS WITH CORRECT VERIFIED ANSWERS 2026-
2027 LATEST UPDATE
1. 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.: Historical Cost Principle
2. What is the Accounting Equation?: Assets = Liabilities + Equity
3. What Accounting Principle Does the Following Represent:
AQG Industries purchases $20,000 of product on credit from RSI Manufactur-
ing. 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.: "Going Concern"
Concept
4. A "note payable for a bank loan" is an example of a...: Liability
5. The principle of Conservatism, says that a company should choose measure-
ment methods that anticipate and record but don't anticipate and
record .: future losses; future gains
6. 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 pro-
gram recently. The company reports this situation in its financial statements as
this might affect the decisions of stakeholders.: Materiality
7. Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what
type of account?: Expense Account
8. Sales Revenue & Deferred Revenue decrease with: Debit or Credit?: Debit
9. Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a
Credit: Decrease
10. These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent: Debit
, HBS CORE EXAM QUESTIONS WITH CORRECT VERIFIED ANSWERS 2026-
2027 LATEST UPDATE
11. The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue: Credit
12. True or False: Transactions are only recorded when there is an exchange of
cash: False: This is true for Cash Basis Accounting, but not for Accrual Accounting.
13. The income statement reflects a company's:: Financial performance over a given period of
time
14. What represents the net income/(loss) for the year?: The ditterence between the rev-
enues/gains and expenses/losses.
15. Income Statement:
Examples of Permanent Accounts: -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
16. Income Statement:
Examples of Temporary Accounts: -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
17. Nominal Accounts: 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.
18. Real Accounts: 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.
19. Balance Sheet: Financial report that shows the financial position of a company at a specific point in time;
a snapshot of the resources that are owned or controlled by company, and how those resources were financed. The
balance sheet shows the balance of all asset, liability, and equity accounts as of a given date.
20. What type of account is 'mortgage payable'?: long term liability account
21. T-Account: A T-account shows all the activity for a given account for a specific period of time, or in other words,
the T-account is the summary of several journal entries.
22. How quickly and easily an item can be converted to cash is known as:: liquidity
, HBS CORE EXAM QUESTIONS WITH CORRECT VERIFIED ANSWERS 2026-
2027 LATEST UPDATE
23. The trial balance for a business at a given point in time typically has much
more detailed information than what is depicted on the financial statements.
What is the accounting concept that allows for the information from the trial
balance to be condensed to what is displayed on the financial statements?: Ma-
teriality
The concept of materiality states that a business is not required to report information on financial statements that would
not impact the decision-making of the users of the financial statements.
24. Steps of Closing Process include:: -Nominal accounts are reset to zero.
-Net income is transferred to the retained earnings account on the balance sheet.
25. For the year 2015, Dark Horse Corp.'s sales revenue was $1,600,000. Cost of
goods sold (COGS) was 40% of sales revenue. Their income statement shows
that operating expense was $150,000.
What was Dark Horse Corp.'s gross profit for 2015?: 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%.
26. Gross Profit: The amount by which the revenue exceeds the cost of goods sold (or cost of sales).
Gross Profit = Net Sales - COGS
27. Recognizing the revenue for inventory sold is an example of what type of
transaction?: explicit transaction
This is an explicit transaction because the inventory being sold is the trigger for recording the transaction.
28. Recognizing impairment on an intangible asset is an example of what type
of transaction?: Implicit transaction
This is an implicit transaction because there is not a specific event that triggers the recording of the transaction.
29. A company purchased a piece of equipment for $350,000 in 2008. As of
12/31/2015, $215,000 of depreciation expense had been recognized against
this piece of equipment.
2027 LATEST UPDATE
1. 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.: Historical Cost Principle
2. What is the Accounting Equation?: Assets = Liabilities + Equity
3. What Accounting Principle Does the Following Represent:
AQG Industries purchases $20,000 of product on credit from RSI Manufactur-
ing. 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.: "Going Concern"
Concept
4. A "note payable for a bank loan" is an example of a...: Liability
5. The principle of Conservatism, says that a company should choose measure-
ment methods that anticipate and record but don't anticipate and
record .: future losses; future gains
6. 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 pro-
gram recently. The company reports this situation in its financial statements as
this might affect the decisions of stakeholders.: Materiality
7. Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what
type of account?: Expense Account
8. Sales Revenue & Deferred Revenue decrease with: Debit or Credit?: Debit
9. Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a
Credit: Decrease
10. These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent: Debit
, HBS CORE EXAM QUESTIONS WITH CORRECT VERIFIED ANSWERS 2026-
2027 LATEST UPDATE
11. The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue: Credit
12. True or False: Transactions are only recorded when there is an exchange of
cash: False: This is true for Cash Basis Accounting, but not for Accrual Accounting.
13. The income statement reflects a company's:: Financial performance over a given period of
time
14. What represents the net income/(loss) for the year?: The ditterence between the rev-
enues/gains and expenses/losses.
15. Income Statement:
Examples of Permanent Accounts: -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
16. Income Statement:
Examples of Temporary Accounts: -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
17. Nominal Accounts: 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.
18. Real Accounts: 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.
19. Balance Sheet: Financial report that shows the financial position of a company at a specific point in time;
a snapshot of the resources that are owned or controlled by company, and how those resources were financed. The
balance sheet shows the balance of all asset, liability, and equity accounts as of a given date.
20. What type of account is 'mortgage payable'?: long term liability account
21. T-Account: A T-account shows all the activity for a given account for a specific period of time, or in other words,
the T-account is the summary of several journal entries.
22. How quickly and easily an item can be converted to cash is known as:: liquidity
, HBS CORE EXAM QUESTIONS WITH CORRECT VERIFIED ANSWERS 2026-
2027 LATEST UPDATE
23. The trial balance for a business at a given point in time typically has much
more detailed information than what is depicted on the financial statements.
What is the accounting concept that allows for the information from the trial
balance to be condensed to what is displayed on the financial statements?: Ma-
teriality
The concept of materiality states that a business is not required to report information on financial statements that would
not impact the decision-making of the users of the financial statements.
24. Steps of Closing Process include:: -Nominal accounts are reset to zero.
-Net income is transferred to the retained earnings account on the balance sheet.
25. For the year 2015, Dark Horse Corp.'s sales revenue was $1,600,000. Cost of
goods sold (COGS) was 40% of sales revenue. Their income statement shows
that operating expense was $150,000.
What was Dark Horse Corp.'s gross profit for 2015?: 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%.
26. Gross Profit: The amount by which the revenue exceeds the cost of goods sold (or cost of sales).
Gross Profit = Net Sales - COGS
27. Recognizing the revenue for inventory sold is an example of what type of
transaction?: explicit transaction
This is an explicit transaction because the inventory being sold is the trigger for recording the transaction.
28. Recognizing impairment on an intangible asset is an example of what type
of transaction?: Implicit transaction
This is an implicit transaction because there is not a specific event that triggers the recording of the transaction.
29. A company purchased a piece of equipment for $350,000 in 2008. As of
12/31/2015, $215,000 of depreciation expense had been recognized against
this piece of equipment.
