HBS CORE EXAM QUESTIONS AND
ANSWERS. VERIFIED 2025/2026.
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. - ANS Historical Cost Principle
What is the Accounting Equation? - ANS 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. - ANS "Going Concern" Concept
A "note payable for a bank loan" is an example of a... - ANS Liability
The principle of Conservatism, says that a company should choose measurement methods that
anticipate and record _____________ but don't anticipate and record _____________. -
ANS future losses; future gains
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,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. -
ANS Materiality
Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type of account? -
ANS Expense Account
Sales Revenue & Deferred Revenue decrease with: Debit or Credit? - ANS Debit
Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a Credit -
ANS Decrease
These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent - ANS Debit
The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue - ANS Credit
True or False: Transactions are only recorded when there is an exchange of cash - ANS False:
This is true for Cash Basis Accounting, but not for Accrual Accounting.
The income statement reflects a company's: - ANS Financial performance over a given period
of time
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, What represents the net income/(loss) for the year? - ANS The difference between the
revenues/gains and expenses/losses.
Income Statement:
Examples of Permanent Accounts - ANS -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
Income Statement:
Examples of Temporary Accounts - ANS -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
Nominal Accounts - ANS 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 - ANS 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.
Balance Sheet - ANS 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.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
ANSWERS. VERIFIED 2025/2026.
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. - ANS Historical Cost Principle
What is the Accounting Equation? - ANS 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. - ANS "Going Concern" Concept
A "note payable for a bank loan" is an example of a... - ANS Liability
The principle of Conservatism, says that a company should choose measurement methods that
anticipate and record _____________ but don't anticipate and record _____________. -
ANS future losses; future gains
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,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. -
ANS Materiality
Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type of account? -
ANS Expense Account
Sales Revenue & Deferred Revenue decrease with: Debit or Credit? - ANS Debit
Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a Credit -
ANS Decrease
These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent - ANS Debit
The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue - ANS Credit
True or False: Transactions are only recorded when there is an exchange of cash - ANS False:
This is true for Cash Basis Accounting, but not for Accrual Accounting.
The income statement reflects a company's: - ANS Financial performance over a given period
of time
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, What represents the net income/(loss) for the year? - ANS The difference between the
revenues/gains and expenses/losses.
Income Statement:
Examples of Permanent Accounts - ANS -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
Income Statement:
Examples of Temporary Accounts - ANS -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
Nominal Accounts - ANS 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 - ANS 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.
Balance Sheet - ANS 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.
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
