ACCOUNTING 101 ACTUAL 2026 STUDY GUIDE
QUESTIONS AND SOLUTIONS RATED A+
✔✔inventory is an - ✔✔asset / current asset
✔✔when inventory is sold it becomes - ✔✔expense (cost of goods sold)
example of matching principle
✔✔multiple step income statement (which includes gross profit is generally used by) -
✔✔merchandisers and retailers
✔✔FIFO - ✔✔first in first out
✔✔LIFO - ✔✔last in last out
✔✔weighted average (average cost) - ✔✔same unit cost to all units available
✔✔specific identification (specific unit cost) - ✔✔matching unit cost with the actual units
sold
✔✔if FIFO is used ending inventory - ✔✔newest inventory remains
✔✔if LIFO is used ending inventory - ✔✔oldest inventory remains
✔✔who would use specific identification - ✔✔jewelers, auto sales, real estate, antiques
✔✔lower of cost or market - ✔✔Based on the principles of relevance and
representational faithfulness. LCM requires that inventory be reported in the financial
statements at whichever is lower the inventory's historical cost or its market value.
the business reports ending inventory at its LCM value on the balance sheet
✔✔book value or carrying value of an asset - ✔✔cost - accumulated depreciation
✔✔which property, plant, and equipment asset is not depreciated - ✔✔land
✔✔depreciation - ✔✔the process of allocating the cost of a long term tangible asset
over its useful life
✔✔amortization - ✔✔the process of allocating the cost of a limited life or intangible
asset over its useful life
✔✔depletion - ✔✔reduction in the number or quantity of something
, ✔✔in order to calculate depreciation what three items need to be known - ✔✔cost,
estimated useful life, estimated residual value
✔✔figure gain/loss - ✔✔difference between book value and amount realized
✔✔single line - ✔✔cost residual value / useful life in years
✔✔units of production - ✔✔cost residual value / useful life, in units of production
✔✔double declining - ✔✔1 / useful life in years * 2
✔✔calculate depletion - ✔✔depletion expense = cost - salvage value / estimated
number of units * number of units extracted
✔✔calculate amortization - ✔✔a= payment amount per period
p= initial principal (loan amount)
r= interest rate per period
n= total number of payments or periods
A= P* r (1 +r) ^n / (1 + r) ^n -1
✔✔trading securities - ✔✔are investments in debt or equity that management plans to
actively trade for profit in the current period
✔✔available for sale - ✔✔is a debt or equity instrument that is a default classification for
any investments that are not classified
✔✔held to maturity securities - ✔✔is a purchased with the intention of holding the
investment to maturity.
✔✔short term investment - ✔✔are temporary investments
✔✔long term investment - ✔✔is an account on the asset side of a company's balance
sheet that represents the company's investments such as: stock, bonds and cash
✔✔current liability - ✔✔an obligation that will be satisfied within the next operating cycle
or within one year if the cycle is shorter than a year
accounts payable, short term notes payable, unearned revenues, accrued expenses
✔✔long term liabilities - ✔✔obligations that are net satisfied within 1 year
leases, bonds
QUESTIONS AND SOLUTIONS RATED A+
✔✔inventory is an - ✔✔asset / current asset
✔✔when inventory is sold it becomes - ✔✔expense (cost of goods sold)
example of matching principle
✔✔multiple step income statement (which includes gross profit is generally used by) -
✔✔merchandisers and retailers
✔✔FIFO - ✔✔first in first out
✔✔LIFO - ✔✔last in last out
✔✔weighted average (average cost) - ✔✔same unit cost to all units available
✔✔specific identification (specific unit cost) - ✔✔matching unit cost with the actual units
sold
✔✔if FIFO is used ending inventory - ✔✔newest inventory remains
✔✔if LIFO is used ending inventory - ✔✔oldest inventory remains
✔✔who would use specific identification - ✔✔jewelers, auto sales, real estate, antiques
✔✔lower of cost or market - ✔✔Based on the principles of relevance and
representational faithfulness. LCM requires that inventory be reported in the financial
statements at whichever is lower the inventory's historical cost or its market value.
the business reports ending inventory at its LCM value on the balance sheet
✔✔book value or carrying value of an asset - ✔✔cost - accumulated depreciation
✔✔which property, plant, and equipment asset is not depreciated - ✔✔land
✔✔depreciation - ✔✔the process of allocating the cost of a long term tangible asset
over its useful life
✔✔amortization - ✔✔the process of allocating the cost of a limited life or intangible
asset over its useful life
✔✔depletion - ✔✔reduction in the number or quantity of something
, ✔✔in order to calculate depreciation what three items need to be known - ✔✔cost,
estimated useful life, estimated residual value
✔✔figure gain/loss - ✔✔difference between book value and amount realized
✔✔single line - ✔✔cost residual value / useful life in years
✔✔units of production - ✔✔cost residual value / useful life, in units of production
✔✔double declining - ✔✔1 / useful life in years * 2
✔✔calculate depletion - ✔✔depletion expense = cost - salvage value / estimated
number of units * number of units extracted
✔✔calculate amortization - ✔✔a= payment amount per period
p= initial principal (loan amount)
r= interest rate per period
n= total number of payments or periods
A= P* r (1 +r) ^n / (1 + r) ^n -1
✔✔trading securities - ✔✔are investments in debt or equity that management plans to
actively trade for profit in the current period
✔✔available for sale - ✔✔is a debt or equity instrument that is a default classification for
any investments that are not classified
✔✔held to maturity securities - ✔✔is a purchased with the intention of holding the
investment to maturity.
✔✔short term investment - ✔✔are temporary investments
✔✔long term investment - ✔✔is an account on the asset side of a company's balance
sheet that represents the company's investments such as: stock, bonds and cash
✔✔current liability - ✔✔an obligation that will be satisfied within the next operating cycle
or within one year if the cycle is shorter than a year
accounts payable, short term notes payable, unearned revenues, accrued expenses
✔✔long term liabilities - ✔✔obligations that are net satisfied within 1 year
leases, bonds
