WALL STREET PREP LATEST 2026 STUDY GUIDE QUESTIONS AND ANSWERS MARKED

WALL STREET PREP LATEST 2026 STUDY GUIDE
QUESTIONS AND ANSWERS MARKED A+
✔✔Buying inventory on credit from the seller - ✔✔-The source of funds is a new liability
-The use of funds is buying inventory

✔✔Issuing stock - ✔✔-The additional equity investors are the source of funds
-The funds were used to add cash

✔✔Double Entry Accounting - ✔✔Every transaction is recorded through the use of a
"credit" (source of funds) and an offsetting "debit" (use of funds) such that total debits
always equal total credits in value

✔✔Debit - ✔✔-Increases in assets
-Decreases in liability and equity

✔✔Credit - ✔✔-Increases in liabilities and equity
-Decreases in assets

✔✔The I/S is linked to the B/S via ______ - ✔✔retained earnings

✔✔The Lemonade stand generated $100k of revenue ________cash balance within
________side of balance sheet (________) and increases ____________ via
shareholder's equity (________) - ✔✔1. increasing
2. asset
3. debit
4. retained earnings
5. credit

✔✔1. The raw materials (lemons and cups): on day one you purchased $20k worth of
cups and lemons
2. Direct Labor: $15k employee mixing the lemonade
3. Depreciation (lemon squeezer): $15k lemon squeezer with $5k depreciation, reducing
value of PP&E to $10k - ✔✔-Decrease Retained Earnings> equity >debit
-Increase Asset > cash (employee salary) >$15 > credit
-Increase Asset > PP&E (depreciation) >$5 > credit
-Increase Asset >$20 > credit

✔✔Employee expense: hired an employee and paid him $15k in cash - ✔✔cash
balance (asset) reduced by $15k (credit) and retained earnings (equity) decreased by
$15k (debit)

✔✔Depreciation: depreciation for $15k lemonade stand and $2k cash register over 3
and 5 yrs - ✔✔asset (PP&E) 5.4k credit, retained earnings + 5.4k debit

, ✔✔Interest Expense _________retained earnings and cash
Interest Income __________retained earnings and cash - ✔✔reduces, increases

✔✔Raised $80k from an investor - ✔✔-does not directly affect net income or retained
earnings
-results in cash going up (debit), while common equity increases (credit)

✔✔I/S impact on the B/S: Non-operating expenses; Income statement impact on the
B/S: Tax expense - ✔✔debit > equity > retained earnings
credit > asset > cash

✔✔Assets are presented in descending order of liquidity - ✔✔1. cash first
2. A/R, inventory, easily converted assets
3. PP&E, intangible assets --> bottom

✔✔Current Assets - ✔✔Can be converted to cash within 12 months

✔✔Liabilities are presented in order of when they are to be paid - ✔✔-Liabilities like
short term debt and accounts payable are to be paid within 12 months and are labeled
"current"
-Long term liabilities (such as long-term debt) are not due within the year.

✔✔Cash equivalents - ✔✔-extremely liquid assets ie Treasury bills
-Marketable securities (debt or equity investments held by the company)

✔✔Accounts receivable (A/R) - ✔✔-sales that a company has made on credit
-Linked to revenues on the income statement

✔✔Impact of A/R on the B/S - ✔✔-Debit > asset > cash > revenue
-Debit > asset > A/R
-Credit > retained earnings (revenue)

✔✔Prepaid expenses - ✔✔When a company prepays for things like utilities, insurance
and rents, cash is reduced, but the expense is not yet recognized on the I/S
-an asset is created to reflect that the company now has the right to the future services

✔✔Impact of prepaid expenses on B/S: on the day of payment - ✔✔-Debit > Asset >
prepaid expenes
-Credit > Asset > cash

✔✔Impact of prepaid expenses on B/S: 1/2 of the period has passed - ✔✔-Debit >
Equity > Retained Earnings
-Credit > Asset > prepaid expenses