Fundamentals of
Accounting 2026 | Study
Guide, Notes & Practice
Q&A Review and
Rationales
|Graded A+ | Guaranteed
success|
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales
Included
,Assets Economic resources that the business plans to use in the future to make money.
Balance sheet The financial report that shows business assets, liabilities, and owner's equity as
of a particular day.
Balanced books When "Where did it go?" equals "Where did it come from?" or wen a company's
assets equal its liabilities plus owner's equity.
Capital Assets that help a business or a person make money.
Capitalizer When money is changed into another asset that helps the business make money.
Creditors Outsiders to whom the company owes money.
Current assets Assets that can be used to pay current liabilities.
Current liabilities Debts that must be paid within one year or one operating cycle, whichever is
longer.
Financial accounting The skill of producing financial statements from business transactions.
Fiscal Year The 12-month period a business uses to report the results of its operations.
Heading All financial statement have a standard 3-line heading as follows:
1. Name of Company
2. Name of the Report
3. Date (balance sheet) or Period of Time (all other statements)
Liabilities Debts owed to people outside the company.
Liquid The easier it is to change an asset into cash, the more liquid that asset is.
Operating cycle The natural period of time before certain business activities tend to repeat-
normally one year.
Owner's equity The portion of the business the owner gets to keep after paying off all creditors.
Sole proprietor The individual owner (without partners) of an unincorporated business.
, Basic accounting equation Assets = liabilities + Owner's equity
OR
Owner's equity = Assets - Liabilities
OR
Liabilities = Assets - Owner's equity
Business entity The financial statements report about a single business. Every business gets its
own set of books. Accountants do not mix in the owner's personal financial info.
Current "Current" liabilities are those debts that must be paid within one year of one
operating cycle, whichever is longer.
Current ratio (Current assets)/(Current liabilities)= Current ratio
Debt Ratio (Total liabilities)/(Total assets)= debt ratio or 100%- equity ratio= debt ratio
Double entry accounting Recording business transactions twice: once to show where the money came
from , and another time to show where the money went.
Equity ratio (Total equity)/(Total assets)= Equity ratio
OR
100% - Debt ratio = Equity ratio
Liability account Payable or Deferred
Equity Account Owner's name, Withdrawal, Dividend, Stock.
Expense Account Expense. (Every expense account on the CLEP exam should have "exp." at then
end, such as "rent exp.")
Income Account Sales, income or revenue.
Asset account Receivable, prepaid, investment, inventory. Many asset accounts merely list the
name of the asset, such as "land" and "equipment" without any special identifying
word. Whenever CLEP questions list an account without one of these key words,
you should assume that it is an asset account.
Account A place on the financial books to keep track of financial information that the
owner wants to know.
Accumulated depreciation The contra-asset account that accumulates all the depreciation of long-lived
assets over the years.
Chart of accounts An account that gets subtracted from its related account. Contra accounts always
get reported as negative numbers.
Accounting 2026 | Study
Guide, Notes & Practice
Q&A Review and
Rationales
|Graded A+ | Guaranteed
success|
Updated 2026 Questions and Answers
100% Verified Exam Prep and Comprehensive
Rationales
Included
,Assets Economic resources that the business plans to use in the future to make money.
Balance sheet The financial report that shows business assets, liabilities, and owner's equity as
of a particular day.
Balanced books When "Where did it go?" equals "Where did it come from?" or wen a company's
assets equal its liabilities plus owner's equity.
Capital Assets that help a business or a person make money.
Capitalizer When money is changed into another asset that helps the business make money.
Creditors Outsiders to whom the company owes money.
Current assets Assets that can be used to pay current liabilities.
Current liabilities Debts that must be paid within one year or one operating cycle, whichever is
longer.
Financial accounting The skill of producing financial statements from business transactions.
Fiscal Year The 12-month period a business uses to report the results of its operations.
Heading All financial statement have a standard 3-line heading as follows:
1. Name of Company
2. Name of the Report
3. Date (balance sheet) or Period of Time (all other statements)
Liabilities Debts owed to people outside the company.
Liquid The easier it is to change an asset into cash, the more liquid that asset is.
Operating cycle The natural period of time before certain business activities tend to repeat-
normally one year.
Owner's equity The portion of the business the owner gets to keep after paying off all creditors.
Sole proprietor The individual owner (without partners) of an unincorporated business.
, Basic accounting equation Assets = liabilities + Owner's equity
OR
Owner's equity = Assets - Liabilities
OR
Liabilities = Assets - Owner's equity
Business entity The financial statements report about a single business. Every business gets its
own set of books. Accountants do not mix in the owner's personal financial info.
Current "Current" liabilities are those debts that must be paid within one year of one
operating cycle, whichever is longer.
Current ratio (Current assets)/(Current liabilities)= Current ratio
Debt Ratio (Total liabilities)/(Total assets)= debt ratio or 100%- equity ratio= debt ratio
Double entry accounting Recording business transactions twice: once to show where the money came
from , and another time to show where the money went.
Equity ratio (Total equity)/(Total assets)= Equity ratio
OR
100% - Debt ratio = Equity ratio
Liability account Payable or Deferred
Equity Account Owner's name, Withdrawal, Dividend, Stock.
Expense Account Expense. (Every expense account on the CLEP exam should have "exp." at then
end, such as "rent exp.")
Income Account Sales, income or revenue.
Asset account Receivable, prepaid, investment, inventory. Many asset accounts merely list the
name of the asset, such as "land" and "equipment" without any special identifying
word. Whenever CLEP questions list an account without one of these key words,
you should assume that it is an asset account.
Account A place on the financial books to keep track of financial information that the
owner wants to know.
Accumulated depreciation The contra-asset account that accumulates all the depreciation of long-lived
assets over the years.
Chart of accounts An account that gets subtracted from its related account. Contra accounts always
get reported as negative numbers.
