IB ACCOUNTING: VAULT + WSP COMPILED ACTUAL
EXAM QUESTIONS WITH ANSWERS VERIFIED 100%
CORRECT
What is an asset
Resources with economic value that can be sold for money
What is a liability
Liabilities are unsettled obligations to another party in the future and represent the
external sources of capital from third-parties
Equity
The capital invested in businesses and represent the internal sources of capital that help
fund its assets.
What are the typical line items on the balance sheet: Assets.
Current Assets
Assets: Cash & Cash equivalents, cash and short-term government bonds
Marketable securities: short-term debt or equity securities that can be liquidated
quickly.
Inventories: raw materials, unfinished goods, and finished goods waiting to be sold and
the direct costs associated with producing those goods.
Prepaid expenses: payments in advance for goods or services expected to be provided
on a later date
,Non-Current Assets:
PPE: Fixed assets such as land, buildings, vehicles, and machinery
Intangible assets: patents, trademarks, intellectual property
Goodwill: intangible asset created to capture the excess of the purchase price over the
fair market value of an acquired asset. Items included in goodwill are proprietary or
intellectual property and brand recognition, which are not easily quantifiable.
What are the typical line items on the balance sheet: Liabilities.
Current liabilities:
Accounts payable: represents unpaid bills to suppliers and vendors OR products paid for
via credit
Accrued expenses: expenses incurred such as employee compensation or utilities
Short-term debt: debt payments coming due within 12 months
Non-current liabilities:
Deferred revenue: unearned revenue received in advance for goods or services not yet
delivered to the customer.
Deferred taxes: tax expense not yet paid bc of temporary time differences
Long-term debt: debt capital with a maturity exceeding 12 months
,Lease obligations: long-term contractural agreements
What are the typical line items on the balance sheet: Shareholders' equity
Common stock: represents a share of ownership a company and can be issued when
raising capital from outside investors.
Additional paid-in capital: reflects the price investors are willing to pay above the par
value of issued stock.
Preferred stock: a form of equity often considered a hybrid investment as it has
common stock and debt
Treasury stock: shares that had been previously issued but were repurchased by the
company in a buyback.
Retained earnings: represents the cumulative amount of earnings since the company
was formed
other comprehensive income: foreign currency translation adjustments and unrealized
gains or losses on available for sale securities
Walk me through a cash flow statement
Two methods: direct and indirect. We use direct as it is most common.
Three sections:
1. Cash from operations (CFO): captures the impact of retained earnings, current assets,
and current liabilities. how much cash did the company generate from operations during
, the period. Starts with net income and adds back non-cash expenses such as d&a and
stock-based compensation.
2. Cash from investing activities (CFI) : captures the impact of long-term assets. cash
expenditures/asset sales and purchases.
3. Cash from financing activities: (CFF) captures the impact of long-term liabilities and
equities.
The three show the sum of the three sections of the net change in cash for the period.
How are the three statements connected?
IS and CFS: The cash flow statement is connected to the income statement through net
income as net income is the starting line on the cash flow statement.
CFS and BS: working capital (current assets and liabilities). The impact from capital
expenditures, debt or equity, and share buybacks (treasury stock) are on the BS. The
ending cash balance on the bottom of the cash flow statement will flow into the BS as
cash balance for the current period.
IS and BS: The main link between the two statements is that profits generated in the
income statement get added to shareholder's equity on the balance sheet as retained
earnings. Also, debt on the balance sheet is used to calculate interest expense in the
income statement.
If you have a balance sheet and must choose between the income statement or cash
flow statement, which would you pick?
EXAM QUESTIONS WITH ANSWERS VERIFIED 100%
CORRECT
What is an asset
Resources with economic value that can be sold for money
What is a liability
Liabilities are unsettled obligations to another party in the future and represent the
external sources of capital from third-parties
Equity
The capital invested in businesses and represent the internal sources of capital that help
fund its assets.
What are the typical line items on the balance sheet: Assets.
Current Assets
Assets: Cash & Cash equivalents, cash and short-term government bonds
Marketable securities: short-term debt or equity securities that can be liquidated
quickly.
Inventories: raw materials, unfinished goods, and finished goods waiting to be sold and
the direct costs associated with producing those goods.
Prepaid expenses: payments in advance for goods or services expected to be provided
on a later date
,Non-Current Assets:
PPE: Fixed assets such as land, buildings, vehicles, and machinery
Intangible assets: patents, trademarks, intellectual property
Goodwill: intangible asset created to capture the excess of the purchase price over the
fair market value of an acquired asset. Items included in goodwill are proprietary or
intellectual property and brand recognition, which are not easily quantifiable.
What are the typical line items on the balance sheet: Liabilities.
Current liabilities:
Accounts payable: represents unpaid bills to suppliers and vendors OR products paid for
via credit
Accrued expenses: expenses incurred such as employee compensation or utilities
Short-term debt: debt payments coming due within 12 months
Non-current liabilities:
Deferred revenue: unearned revenue received in advance for goods or services not yet
delivered to the customer.
Deferred taxes: tax expense not yet paid bc of temporary time differences
Long-term debt: debt capital with a maturity exceeding 12 months
,Lease obligations: long-term contractural agreements
What are the typical line items on the balance sheet: Shareholders' equity
Common stock: represents a share of ownership a company and can be issued when
raising capital from outside investors.
Additional paid-in capital: reflects the price investors are willing to pay above the par
value of issued stock.
Preferred stock: a form of equity often considered a hybrid investment as it has
common stock and debt
Treasury stock: shares that had been previously issued but were repurchased by the
company in a buyback.
Retained earnings: represents the cumulative amount of earnings since the company
was formed
other comprehensive income: foreign currency translation adjustments and unrealized
gains or losses on available for sale securities
Walk me through a cash flow statement
Two methods: direct and indirect. We use direct as it is most common.
Three sections:
1. Cash from operations (CFO): captures the impact of retained earnings, current assets,
and current liabilities. how much cash did the company generate from operations during
, the period. Starts with net income and adds back non-cash expenses such as d&a and
stock-based compensation.
2. Cash from investing activities (CFI) : captures the impact of long-term assets. cash
expenditures/asset sales and purchases.
3. Cash from financing activities: (CFF) captures the impact of long-term liabilities and
equities.
The three show the sum of the three sections of the net change in cash for the period.
How are the three statements connected?
IS and CFS: The cash flow statement is connected to the income statement through net
income as net income is the starting line on the cash flow statement.
CFS and BS: working capital (current assets and liabilities). The impact from capital
expenditures, debt or equity, and share buybacks (treasury stock) are on the BS. The
ending cash balance on the bottom of the cash flow statement will flow into the BS as
cash balance for the current period.
IS and BS: The main link between the two statements is that profits generated in the
income statement get added to shareholder's equity on the balance sheet as retained
earnings. Also, debt on the balance sheet is used to calculate interest expense in the
income statement.
If you have a balance sheet and must choose between the income statement or cash
flow statement, which would you pick?
